Topic: Confused about tax accounting for coin-for-coin trades in USA (Read 74 times)

Alright I think I got a handle on it. I was just way over complicating everything.

The original starting value of coins on the exchange already gets calculated as the cost basis for trades when I sell it, and the ending value of all coins on exchange at EOY is already inherent in the sale price of the associate trades that gave me those coins, and values for withdrawals and deposits are also already inherent in the trades associated with them after they got on the exchange and before the left.

So it's just the basic sum of trade sale prices minus sum of trades cost basis to calculate the correct capital gain/loss. Simple.

The hard part is still just tracking coins sent between exchanges and wallets and whatnot across years and in different amounts.

Coinbase sent them my sell volume from Coinbase Pro back then and now two years later the IRS is like hey we think you owe us over a million dollars. But I also traded on Bittrex, Mercatox and one trade on another exchange. I've done all the account for trades on everything, but just want to make sure I'm adding up the numbers correctly at the end. Also tracking cost basis across exchanges and withdrawals/deposits is a nightmare, not fully accounted for all that. Using LIFO. But its just insanely complex. Thought I was finally done today but now not sure if I did everything correctly.

An example:

1. Have BTC worth $1000 to start the year.
2. Buy ETH with $200 of BTC, later sell it back to BTC when it is worth $400.
3. Now I have $800 BTC, $400 ETH.
4. Deposit $100 cost basis value of BTC onto the exchange. So now I have $900 BTC and $400 ETH.
5. Buy ETH with $300 BTC, I don't ever sell this back this year. I now have $600 BTC and $700 ETH.
6. Withdraw $200 BTC. I now have $400 BTC and $700 ETH.
7. Buy ETH with $100 BTC, later sell it back to BTC when it is worth $200. I now have $500 BTC and $900 ETH.
Year ends.
Note: the actual price of these coins will have changed by year's end, but the value for taxes is locked in with each trade so the stay the same for accounting purposes.

So is sale price total:
(All trade sale prices: $400 + $200 = $600
plus
all withdrawn coins value: $200
plus
value of all coins left on the exchange: $500 + $900 = $1400)
So that all adds up to a total sale price of $2200

And the cost basis total:
(All trade costs basis values: $200 + $300 + $100 = $600
plus
all deposited coins cost basis value: $100
plus
initial cost basis of coins on the exchange at start of year: $1000)
So that all adds up to a total cost basis of $1700.

So capital gains is $2200 - $1700 = $500??

Which I supposed can be simplified by not counting the all the trade cost basis and sale prices and just doing:
capital gain/loss = (end value on exchange $1400 + withdrawn value $200) - (initial value on exchange $1000 + deposited value $100) = $500

Is this correct?

if you don't mind saying, what exchange(s) were you using? had you completed KYC and provided your SSN? (just curious where the IRS is pulling data for these warning letters!)


it depends if you use FIFO vs LIFO vs specific lot identification. https://tokentax.co/help/fifo-lifo-minimization-and-average-cost-explained/

your situation sounds complex. you might wanna hire a company like tokentax. you can dump all your exchange export data on them and they'll crunch the numbers and figure out the ideal cost accounting method to minimize your liability.


dealing with coin-to-coin trades manually is a nightmare.

it's still the same principle as selling for USD---you're selling for another coin which has a specific USD value. you could think of it as "selling for USD then buying another coin with that USD". that's how the IRS views it. the selling part of the transaction is obviously taxable.

Initially I was subtracting the (sum of the cost basis for each trade + initial coin value that started the year) from the sum of the sale prices of each trade. But now I'm realizing I need to include mid-year deposit and withdrawal values right? And also need to count the value of my coins left over on the exchange at the end of the year (according to the trades that gave them their value) as part of the sale price because every buy is actually also a sell when it's coin/coin trades? I'm not totally sure this logic is correct though.

Yeah I'm working in USD. I am using the USD price at the time of the trade of BTC or ETH (whichever one was the base coin I was trading with) to get the USD price for each trade. But still, unlike trading in USD, when I buy it still counts as a sale because I'm buying crypto when I'm selling crypto. So that makes it confusing. Yeah I calculated all the gains/losses from each individual trade, but I'm just confused on how to add everything up to accurately get my capital gain/loss.

Do you not have to work in usd or have you already been converting it?

You might have to calculate your profits per sell that profited overall too (like a proportion on each profitible sale). Eg:

You make 0.02 in August, 0.03 in October and 0.05 in December..
Your profit would be 0.1 but your fiat profit for each would be different.

(and if you make a loss you'd find your mean profit)? This is just how I'd do it if it wasn't much it might not matter.

Trying to figure out taxes for coin/coin trades I made in 2018 as the IRS hit me with a letter saying they think I owe them a ton of money recently for that year. But I'm getting confused about figuring out the numbers correctly for coin/coin trades.

So say the year starts and I already have some BTC on an exchange worth some amount of cost basis. I then make a bunch of coin/coin trades during the year, I transfer more coins into the exchange that have their own cost basis, I transfer out some coins that have whatever cost basis has resulted from the trade for them, and I have some amount of coins left over at the end of the year on the exchange that now have a certain cost basis.

So the separate parts are: initial coin cost basis starting the year, cost basis of all trades, sale price of all trades, value of coins deposited during the year, value of coins withdrawn during the year, and the value of the coins left on the exchange at the end of the year.

So to figure out capital gains/losses do I do:
(sale price of all trades + cost basis value of coins withdrawn during year + cost basis value of coins left on exchange)
- (cost basis of all trades + cost basis value of all coins deposited during year + initial coins cost basis)
= capital gain/loss??

Which should just be the same as (total value of all coins left on exchange + all withrdrawn coins value) - (initial cost basis of coins already on exchange + cost basis of all deposits).

Does that make sense. Just the fact that when you are buying also counts as a sell since it's coin to coin is confusing me. But I think the above makes sense right? Coin/fiat trades are much easier cuz buys don't count as sells but back then I was mostly doing coin/coin.