May 30, 2024

How to Track and Report Crypto Transactions for Tax Purposes

Cryptocurrency has experienced significant success in recent years, as a result, the demand for and importance of tracking and reporting crypto transactions for tax purposes has increased.


As tax officials around the world have a growing interest in cryptocurrency, it's important for individuals and companies that participate in crypto transactions to understand the tax consequences and ensure that they report them properly.


Understanding How Cryptocurrency is Taxed

When taxation is concerned, cryptocurrency transactions are typically considered subject to either capital gains tax or income tax. The difference between these two types of taxes is based on the nature of the transactions.


Capital Gains Tax vs. Income Tax on Crypto Transactions


* Capital Gains Tax

The capital gains tax is based on the profit gained from the sale or exchange of a capital asset, such as cryptocurrency, and is classified as either short- or long-term.


The short-term capital gain tax is applied to profits from the sale of a cryptocurrency that is held for a year or less, and it is typically taxed at the individual's standard income tax rate.


The long-term capital gain tax is applied to profits derived from the sale of a cryptocurrency that is stored for a period of time longer than one year, and is subject to a preferential tax rate that is typically lower than the ordinary income tax rate.


Capital gains taxes are applied when selling or trading cryptocurrency. The sale or trade of cryptocurrency is dependent on the length of time the currency was held before being sold or traded.


* Income Tax

The income tax rate on cryptocurrency transactions is based on the income received from activities like mining, staking, or receiving payment for goods or services in cryptocurrency.


The monetary value of the cryptocurrency is included in the individual's taxable income at the current price of the cryptocurrency.


Crypto income tax is applied when generating cryptocurrency through mining, staking, or receiving payments in exchange for goods or services. The estimated value of the cryptocurrency in the market is taxed on income during the actual receipt of the cryptocurrency.



It's crucial for cryptocurrency enthusiasts to recognize the time of these taxes based on their actions. Whether it's purchasing, selling, trading, or receiving payment from a cryptocurrency, each type of transaction has different tax implications. As a result, it's crucial to maintain accurate records of all cryptocurrency transactions in order to determine the most effective tax strategy.


Importance of Accurate Tracking

Diligently following all crypto transactions for tax purposes is important for several reasons.


First, accurate tracking is crucial to complying with tax regulations and helping individuals or companies avoid potential sanctions or legal consequences associated with underreporting or misreporting their cryptocurrency-related income and gains.


Additionally, maintaining specific records of cryptocurrency transactions can help to facilitate the preparation of accurate tax returns, reduce the likelihood of mistakes and audits.


To facilitate the tracking and management of crypto transactions for tax purposes, individuals and businesses can take advantage of a comprehensive financial management solution, like Nonbank. This platform can simplify the process of recording and categorizing transactions, and estimating the value of cryptocurrency in real time. By utilizing automation and advanced tracking capabilities, the platform can assist users in maintaining organization and ensuring tax compliance.


Avoiding Common Mistakes

When it comes to tax reporting on crypto, there are several common mistakes (and pitfalls associated with them) that people should avoid.


⛔ Underreporting or Failure to Report Transactions

Common pitfall: failure to report all crypto transactions, including sales, trades, and profits, can lead to tax returns that are inaccurate and possible consequences.


How to avoid it? Maintain comprehensive records of all cryptocurrency transactions and employ reputable tax software or professional assistance to ensure comprehensive reporting.


⛔ Misclassification of Transactions

Common pitfall: classifying cryptocurrency transactions as income or loss, can lead to misclassified tax treatment.


How to avoid it? Recognize the difference between capital gains and income tax on cryptocurrency transactions, and seek advice from tax professionals regarding the classification of specific transactions.


⛔ Lack of Documentation and Record-Keeping

Common pitfall: Can't keep comprehensive records of cryptocurrency transactions, including the date, amount, and value of the transactions, can lead to difficultly proving taxability in the event of an audit.


How to avoid it? Implement a comprehensive system for keeping records of crypto transactions, including digital wallets, exchanges, and other participants, and consider utilizing specialized software or platforms to simplify the documentation process.


⛔ Ignoring Tax Reporting Obligations for Airdrops and Forks

Common pitfall: Airdrops and forks are frequently disregarded in the tax calculation, which can lead to unexpected tax debt.


How to avoid it? Be aware of the tax treatment of airdrops and forks, and actively participate in any relevant events in order to ensure compliance with tax regulations.


By understanding and addressing the common mistakes that people and businesses commonly make, individuals and companies can reduce the likelihood of these mistakes and ensure accurate and compliant tax reporting of crypto assets.


Practical Steps for Crypto Tax Reporting

It's crucial to accurately surveying and reporting all cryptocurrency transactions, and having a tax professional assist you with all the obligations.


There are several dedicated solutions for tracking and generating reports regarding cryptocurrency transactions available. Popular choices include such platforms like Koinly, CoinLedger and Accointing.


If you want to do it yourself, here's a comprehensive guide on how to follow and report on crypto transactions:


Step 1: Gather Transaction Records.

Acquire a list of all cryptocurrency transactions, including purchases, sales, trades, mining profits, staking rewards, and other cryptocurrency-related activities.


Step 2: Organize Transaction Data.

Organize the data about transactions in a categorical manner, such as by way of buying, selling, exchanging, or receiving cryptocurrency.


Step 3: Record Transaction Details.

Keep track of the important details of each transaction, including the date, type, value in cryptocurrency or fiat, the participants, and the fees associated with the transaction.


Step 4: Calculate Gains and Losses.

Figure out the benefits or drawbacks of each transaction by calculating the difference between the cost of acquisition and the value in a fiat currency.


Step 5: Classify Transactions for Tax Purposes.

Each transaction is categorized as either subject to capital gains tax or income tax.


Step 6: Maintain Accurate Valuation.

Maintain the accurate value of cryptocurrency by regularly altering the current price of each type of cryptocurrency possessed.


Step 7: Utilize Financial Management Tools.

Consider utilizing specialized financial management tools or cryptocurrency tax software to automate the process of tracking and reporting, this can simplify the management of transactions regarding crypto and facilitate tax reporting.


Following these steps, individuals and companies can create a systematic method of tracking cryptocurrency transactions for tax reporting purposes.



Effective tracking and reporting of crypto transactions for tax purposes is crucial for individuals and companies that participate in cryptocurrency activities. Accurate tax keeping and dedicated reporting of taxes not only guarantees compliance with legal requirements, but also averts the risk of punishment, fine, or legal consequences associated with tax misfiling or lack of tax filing.

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