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INTRODUCTION

Accepting cryptocurrency has the potential to open your business up to new customers, reduce chargebacks, and help align the image of your company to your audience, but it is also important to note that despite record-setting pace in growth, the industry is still experiencing its growing pains.

Specifically, most of the widely used, and therefore widely accepting cryptocurrencies like Bitcoin and Ethereum, are sensitive to market sentiment, as well as investor driven supply and demand cycles – as a result their market prices occasionally experience volatility.

Beyond this, in most jurisdictions, cryptocurrency is a taxable asset. In the U.S. it is considered “property” and therefore subjected to capital gains (and loss) taxes.

In this lesson, we will learn about the tools available for individuals and businesses to calculate their overall tax liability with their cryptocurrency holdings and transactions.

INTRODUCTION
A FEW OPTIONS: TAX PLANNING TOOLS

A FEW OPTIONS: TAX PLANNING TOOLS

There are a number of potential approaches one can make when evaluating the best way to handle their cryptocurrency taxes.

The most common method is to simply outsource the tax calculation to a business accountant.

The alternative is to use a bit of elbow-grease and perform your own tax calculations using a software solution.

The latter can be used in combination with advice from your accountant – if your transaction volume and dollar amount is significant, this exercise can help to provide some advanced knowledge of your potential tax liability.

You may also direct your business accountant or tax advisor to the software tools be mention in this lesson.

A FEW OPTIONS: TAX PLANNING TOOLS

As of this writing, there are currently two established cryptocurrency tax planning and calculation software platforms in the market.

- Bitcoin.tax

- CoinTracking.info

In this lesson we will be learning how to use the latter, CoinTracking.info – based on our evaluation, it is currently one of the most robust cryptocurrency tax planning software programs in the market.

It supports nearly every imaginable exchange integration, from data file import, to direct API key or login integration.

It also allows for manual import, manual order entry, and manual edits to any data previously imported.

A FEW OPTIONS: TAX PLANNING TOOLS
GETTING STARTED: ACCOUNT CREATION

GETTING STARTED: ACCOUNT CREATION

The first step in utilizing CoinTracking.info is to actually navigate to the site and set up an account: https://cointracking.info

Click “Sign Up For Free” and enter the desired Username, Password and your Email Address.

Verify your email address using the link supplied in the email received.

Log In to your account to access the Dashboard.

GETTING STARTED: INPUTTING TRANSACTIONS

Upon login, you will be taken to the “Enter Coins” screen – if not, you can manually navigate there from the top menu.

You will need to input all transactions you’ve ever made in order for the tax calculator to work properly – please be sure you are providing the software with your complete crypto transaction picture.

There are five (5) methods to inputting transactions:

- Manual CSV Exchange Import

- Automatic API Exchange Import

- Automatic API Wallet Import

- Wallet Import

- Automatic File Import (CSV, Excel, Custom)

- Manual Input

In next several sections we will be covering each method to familiarize you with all methods of input.

GETTING STARTED: INPUTTING TRANSACTIONS
ENTER COINS: MANUAL CSV EXCHANGE IMPORT

ENTER COINS: MANUAL CSV EXCHANGE IMPORT

Manual CSV Exchange Import - this process involves generating a CSV (comma-separated values) data file from the exchange(s) you perform trades at.

If you do not perform any transactions on exchanges, you may skip this and the following section

The CSV file will contain a record of all transactions generated from the exchange – please note that each exchange has a unique process to generating and obtaining the output – Cointracking.info has gone through the process of documenting instructions on how to perform a successful import at each of 32 exchanges.

Log in to the exchanges you actively trade on and follow the instructions provided on Cointracking.info by clicking on the respective exchange icon.

ENTER COINS: MANUAL CSV EXCHANGE IMPORT

In this lesson, we will demonstrate the manual import of a CSV file generated from GDAX (now known as Coinbase Pro).

Click the GDAX logo from the Manually CSV Exchange Import section.

Follow the instructions provided to generate your CSV file from the exchange.

Once you’ve obtained the CSV file (should be named fills.csv), click Choose File to locate and attach the file.

You should see a green progress bar, once complete click Continue to Import.

You will be taken to the Import screen, click Start Import – you should see a preview of your transactions on the same screen - you can increase the view count as needed to review and confirm the transactions were successfully imported.

ENTER COINS: MANUAL CSV EXCHANGE IMPORT
ENTER COINS: MANUAL CSV EXCHANGE IMPORT

ENTER COINS: MANUAL CSV EXCHANGE IMPORT

When new trades are successfully added, you will see a pop-up appear at the bottom right corner of the screen prompting you to Recalculate Trades – click the button to apply the recently imported transactions to your portfolio.

You can continue uploading additional files from the same exchange or click return to your trades to head back to the Enter Coins page.

You should notice your portfolio Summary updated to reflect the current calculated portfolio holdings value based on the recent import.

Please note that this information may be wildly inaccurate until you’ve successfully imported all sources of transactions.

ENTER COINS: AUTOMATIC API EXCHANGE IMPORT

Automatic API Exchange Import this feature utilizes a software API (Application Programming Interface) to directly connect to your exchange to perform a transaction import.

This process requires providing permission by your account to connect with Cointracking.info to grab the transaction information.

The advantage of this feature is that transactions are automatically updated as they are made at the exchange level so long as the API connection remains active – you do not need to manually upload for each time you have an update.

Note – this feature is not compatible with the previous manual import feature, you must choose one method, otherwise you will have to remove the previous transactions submitted.

ENTER COINS: AUTOMATIC API EXCHANGE IMPORT
ENTER COINS: AUTOMATIC API EXCHANGE IMPORT

ENTER COINS: AUTOMATIC API EXCHANGE IMPORT

Select the exchange you wish to connect your account to by clicking on its logo.

In our example, we will be linking our account to Poloniex.

CoinTracking.info provides clear instructions on how to generate the necessary API Keys to enable pairing of your exchange account with your CoinTracking account.

Log in to your Poloniex account and follow the instructions to generate your keys – copy paste these into the respective API Key and Secret fields.

You can use the provided toggles to disable the import of certain trades, by default all are selected – switching certain toggles off will prevent those specific transactions from being imported providing a potentially incomplete picture.

Click Save this Job – the system should automatic connect and start importing transactions, it could take up to 10 minutes to import all records.

ENTER COINS: AUTOMATIC API EXCHANGE IMPORT

As per the previous exercise, please make sure to click Recalculate Trades to apply them to your portfolio values in the Summary section.

You should be able to see the trades reflected in your table of entries on the Enter Coins page.

As long as the API connection is active and established, CoinTracking.info will periodically update and check that all transactions are being reflected.

This is by far the most convenient setup – however, keep in mind that anyone that has access to your API Key and Secret will have visibility into your account – it is important to safeguard this information from prying eyes.

As a precaution we recommend disabling trade access with your exchange using the API key feature – nearly all exchanges allow this as an option.

ENTER COINS: AUTOMATIC API EXCHANGE IMPORT
ENTER COINS: WALLET IMPORT

ENTER COINS: WALLET IMPORT

Wallet Import – CoinTracking.info supports importing of CSV files from your web and hardware wallets.

This is primarily a tracking feature to help aggregate all of your token holdings.

While this can be helpful from a reporting standpoint, since the purchase and sales of cryptocurrency does not occur in wallets, there are generally no taxable events at the wallet level.

The exception to this is if you are running a business and receiving crypto directly into your wallet- if this is the case, follow the instructions provided to upload the generated CSV from your wallet provider – you can use the features in CoinTracking to only include those transactions that are relevant to your tax picture.

ENTER COINS: AUTOMATIC API WALLET IMPORT

Automatic API Wallet Import – CoinTracking.info supports importing of transactions directly from your wallet address by witnessing transactions directly on the blockchain.

This is primarily a tracking feature to help aggregate all of your token holdings.

While this can be helpful from a reporting standpoint, since the purchase and sales of cryptocurrency does not occur on wallets, there are generally no taxable events at the wallet level.

The exception to this is if you are running a business and receiving crypto directly into your wallet- if this is the case, follow the instructions provided to paste your businesses wallet addresses – you can use the features in CoinTracking to only include those transactions that are relevant to your tax picture.

ENTER COINS: AUTOMATIC API WALLET IMPORT
ENTER COINS: AUTOMATIC FILE IMPORT

ENTER COINS: AUTOMATIC FILE IMPORT

CSV, Excel and Custom Import – CoinTracking also supports the ability to upload a CSV that is not from its predefined list of supported exchanges.

This is especially useful if you are accepting crypto on your website or retail location – where funds are deposited to a wallet and sold on an exchange.

The way this works is that you copy-paste any raw data into CSV template that CoinTracking provides.

It is important to preserve the original, raw data format that CoinTracking provides, otherwise the import will fail.

You may also manually input the raw data if you are manually transcribing it from a different source, just make sure not to have any typos, as the data import into CoinTracking relies on the exactness of the data provided.

Once uploaded, you will see the data appear in the Coins page just as with all other methods.

ENTER COINS: MANUAL INPUT

Manual Input – for those that are unable or unwilling to utilize any of the automated import features, CoinTracking also allows for the manual input of transactions using their User Interface.

The interface is self explanatory and allows you to input both buy and sell side transactions, while also including a Trading Fee.

Begin by entering the Transaction Type and Transaction Date.

Keep in mind transactions that will incur a taxable event, such as income, mining, gifts, and spends – they all represent exit points even if a sale of the asset did not occur.

You must click Edit Asset Value in order to input the Buy and Sell side values, you may also optionally input exchange information as well.

ENTER COINS: MANUAL INPUT
CALCULATIONS: REALIZED AND UNREALIZED GAINS

CALCULATIONS: REALIZED AND UNREALIZED GAINS

Realized and Unrealized Gains to access this screen, navigate to the Reporting tab and under the Gain (Expert) section, select Realized and Unrealized Gains.

This is the single most important feature of CoinTracking with respect to performing your tax calculations.

We recommend reviewing all transactions with your tax advisor.

There are several important settings on this page – they are each important and can significantly impact the gain/loss calculation.

Roll-over the (info) icon on each section to learn more about each configuration setting.

CALCULATIONS: REALIZED AND UNREALIZED GAINS

Please note that the Gain and Loss screen allows for several configuration options.

We recommend you review these with your tax advisor – however, for expert users, you can review the explanation by rolling over the (info) icon.

The purpose of this feature is to enable to appropriate use of the settings to compute your gain and loss.

Additionally, by selecting the calculation methodology, you can optimize your tax loss harvesting to reduce the total tax liability should your transactions permit doing so.

CALCULATIONS: REALIZED AND UNREALIZED GAINS
CALCULATIONS: REALIZED GAIN/LOSS

CALCULATIONS: REALIZED GAIN/LOSS

Realized Gain / Loss for all Sales this feature can be accessed by scrolling down and expanding the section on the Realized and Unrealized Gain Loss screen.

This section will display the calculated Realized Gain / Loss for all transactions – these are the transactions that will incur a taxable event and therefore should be reviewed carefully for accuracy.

This should be viewed once you’ve configured your settings in the previous section, you can view the sum of all transactions that are being applied to your Realized Gain/Loss.

Applying these transactions will remove them from the system so that they can no longer be applied to future calculations – please review them with your tax advisor.

CALCULATIONS: UNREALIZED GAIN/LOSS

Unrealized Gain / Loss for all Purchases this section displays all of the open transactions that do not have a corresponding sale or exit transaction matched with it.

Again, we recommend reviewing this section with your tax advisor for accuracy as the accuracy of this information will be directly relevant to your tax liability.

These transactions will continue to persist in the system and remain open for future realized gain/loss calculations in your subsequent tax years.

CALCULATIONS: UNREALIZED GAIN/LOSS
CALCULATIONS: TAX-REPORT

CALCULATIONS: TAX-REPORT

Tax-Report this is a powerful feature that summarizes your total tax liability into a single deliverable document and represents the final step in preparing your taxes; it also supports integration with TurboTax and TaxAct and can generate a Form 8949 statement for US users as well.

You will first begin by generating a report – once the task is completed, click Load Report.

This will bring you to another section that displays the tax report of transaction for each category type:

- Capital Gains

- ReportGift and Donation Report

- Lost and Stolen Report

- Closing Position Report

We recommend you export and review these with your tax advisor – you can export each section into a number of supported formats including PDF, CSV, and Excel.

ALL DONE!

Wow, you’ve just learned how to use one of the most powerful cryptocurrency tax calculation platforms.

Please note that this lesson was designed to be an introductory course to familiarize you with CoinTracking.info’s platform as it relates to tax calculation.

An understanding of your local tax laws is required to appropriate set, configure and utilize this software.

CoinTracking also provides robust portfolio calculation features which we have not reviewed in this presentation.

The tax calculations and reports reviewed in this presentation are designed with US filers in mind, however, since most localities share similar tax treatment of cryptocurrencies as well as similar gain/loss calculations – we believe this tool valuable across many different tax jurisdictions.

ALL DONE!
EDUCATIONAL PURPOSES ONLY

EDUCATIONAL PURPOSES ONLY

CryptoBackup™ does not receive compensation from CoinTracking.info and are in no way associated with its products or services.

The material provided in this presentation does not constitute tax advice and CryptoBackup™ will not be held liable for any errors or omissions in this presentation.

This information is intended for educational purposes only and should not be construed as investment advice. 

As with all financial decisions you should contact your licensed financial advisor before investing in any financial instrument.