Stocks and Crypto Cost Basis
Stock and Crypto Cost Basis, what you need to know when you complete your Federal Returns. You need to know how to figure out the stock and crypto cost basis and associated fees. When you sell stocks, your brokerage will issue you a 1099 form in late January or even as late as a march in some cases. This 1099 form will have all your stock sales on it and should have what you bought the stock for (the cost basis) and the dates when you sold it and when you bought it.
For crypto assets, it is important to keep track of your original purchase price, or cost basis, and any associated fees in order to accurately report capital gains or losses from cryptocurrency transactions on your taxes. This is crucial for avoiding a higher tax bill than necessary, and can be made easier with the use of crypto tax software like TokenTax. Additionally, keeping track of your cost basis using cost basis accounting methods can also help you better understand your overall investment portfolio and make informed decisions about buying and selling in the future.
Usually, this form will have ALL the necessary data that we need to complete your taxes. Sometimes, when you have owned the stock for many years or if you transferred from one brokerage to another, this important data is missing.
Your Broker can Assist with Stock Cost Basis
Have your broker track down the basis of any stock that is missing this data. The easiest way is to contact your broker and tell him/her that you need his/her assistance to figure out the basics. This is something that usually happens automatically in their system but sometimes you have to ask.
The brokers do not want to talk to us… the main reason is that there are privacy issues. Secondly, the broker works for you, and you can get them to follow through (because you pay them) a lot better than we can.
What if they can’t help
If you need us to find the basis, please realize that it will take additional billable hours to investigate the basis. We will need the date or dates that you bought your stock to track down the cost using the average cost method, which takes the total amount of the shares and divides it by the number of shares in the fund.
For example, if you own a mutual fund that has 3 shares purchased at $5, $6, and $7; using the average cost method, we’ll add up the purchase prices ($18), and divide it by the total shares in the fund (3), resulting in a cost basis of $6. It is a lot cheaper for you to get the broker to do it for free. For every stock that you sold that is missing basis, you will need to provide us with the stock name, symbol, date of purchase, number of shares, and any information on stock splits that may have occurred.
Additionally, if you have acquired new shares through dividend reinvestment, please provide us with the necessary information to accurately calculate your cost basis with the help of a financial advisor. Learn about more crypto software choices.
Don’t forget that Crypto counts
If you are dabbling in the Cryptocurrency world, I hate to tell you that crypto transactions are treated like stock sales. The Federal government is really focused on tracking your Crypto transactions for Taxes. This means EVERY time you buy something with crypto… or sell your crypto it is a transaction reportable sale for the Internal Revenue Service (IRS) with potential tax implications, including transaction fees and crypto capital gains tax rates.
Stock and crypto cost basis is important, as each transaction can be a taxable event for tax purposes, and it is crucial to accurately report them on your tax return. If anyone hasn’t explained this to you, you are in for a rude awakening. The Federal IRS is working hard to Identify everyone who acquires and trades any type of cryptocurrency. There is a question right on your tax return, that asks you point blank: “Do you have any crypto transactions that may have much tax implications?”
Don’t forget that crypto transactions are subject to capital gains tax rates, which depend on your income and holding period. Short-term gains are taxed at ordinary income rates (10-37%) while long-term gains are subject to preferential rates (0-20%) based on income.
“At any time during the year did you receive, sell, send an exchange or otherwise acquire any financial interest in any virtual currency?”
When you sign the Federal Returns, let’s not forget that you attest to the truthfulness of the Tax Return and could be subject to perjury penalties.
IRS sent letters out
The simple truth is if you are playing in the crypto world, you must report it to the IRS. The more transactions you have the greater probability that the IRS will be able to identify your failure to report it on your Tax Returns. Just think, on every transaction, there are at least 2 people involved. The IRS reported that it sent letters to more than 10,000 people who potentially failed to report crypto transactions on their taxes, along with the necessary tax forms.
The IRS didn’t randomly pick people out of the air, they KNEW that those people failed to file their crypto on their Returns. If you are one of those people who may have overlooked your crypto reporting in the past, we would recommend that you amend any past Returns using a crypto tax calculator like Koinly. Koinly integrates with crypto exchanges and wallets using API or by uploading a CSV file of your transaction history, letting you track all your crypto transactions from one platform.
Crypto Software for Tax Reporting
There are quite a few companies that offer crypto software for assisting you in getting ready for the Federal IRS. Another referral site for different software choices is coinsutra.com/crypto tax. We recommend CoinLedger.
FAQs
What is cost basis in crypto trading?
Cost basis in crypto trading refers to the original value of a cryptocurrency asset for tax purposes. It includes the purchase price, transaction fees, and any other expenses incurred during the acquisition. It is used to calculate capital gains or losses when selling or exchanging cryptocurrencies.
How is cost basis calculated in cryptocurrency transactions?
Cost basis in cryptocurrency transactions is calculated by taking into account the original purchase price of the cryptocurrency, any additional fees or expenses incurred during the transaction, and any adjustments made for splits, forks, or other events that affect the cost basis.
Is it necessary to keep track of your cost basis for every crypto transaction?
Yes, it is necessary to keep track of your cost basis for every crypto transaction. Knowing the cost basis helps calculate capital gains or losses when you sell or exchange your cryptocurrencies. It is important for tax purposes and to accurately report your financial transactions.
Are there any tools or software available to help calculate your crypto cost basis?
Yes, there are several tools and software available to help calculate your crypto cost basis. Some popular options include CoinTracking, CryptoTrader.Tax, and Koinly. These tools can automate the process of tracking your cryptocurrency trades and calculating the cost basis for tax purposes.
Also Read
4. Income Tax
