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What are your thoughts on the various Crypto-tax services? For the first time in a while I'm going to have to deal with Crypto on my 2021 returns and my plan wa

What are your thoughts on the various Crypto-tax services? For the first time in a while I'm going to have to deal with Crypto on my 2021 returns and my plan was to use on of the SaaS' out there for it. We are talking <100 (probably <40) trades max for my use-case and they seemed to be a good choice (as they import trades from major exchanges and spit out the needed IRS form) to use in addition to my normal tax preparing software. Also, if it's not too much to ask, how should one handle crypto that they mined 6+ years ago, never declared (it was worth <$100 at the time of mining), and now want to cash out? My understanding is I was supposed to declare it as income way back then and now I would just pay capital gains (long term in my case) taxes on it. I'm happy to file some kind of an addendum but is it needed for <$100?

megameter 6y ago
I have been dealing with a similar problem: Very old holdings that I first traded for back in 2013. It's unfeasible to record what I traded then since it goes through a trail of dead exchanges. I've been filing them as capital gains as I trade them now, dating their purchase time back to the year I originally traded for them(thus making them long-term), and their acquisition price as $0. Marking acquisition price on trades to $0 is consistent with how I've seen the IRS behave in the past when I failed to report stock trades accurately($1mm volume = $1mm taxable when this occurs), and since the prices have increased 1000% in most instances(I buy and hold for years, and while I traded in 2017-2019, I did not trade at all in 2020) the initial cost is easy for me to write off. I plan to use Cointracker's reports going forward.
- tldrthelaw 6y ago
  This tracks. Being transparent if you're audited will be key. You're trying to keep track of things, and trying to pay what you owe based on the information you have. Just as a heads up for other folks reading this, having a basis of $0 isn't the same as paying tax on the mined value at ordinary income rates (cap gains rate differs from ordinary income rates). Mined coins and bought coins are treated differently owing to how they're acquired.
tldrthelaw 6y ago
Happy to help in general terms here. Generally speaking, risk of audit and high fines and fees go up as the amounts you're dealing with go up. I don't know what kinds of values we're dealing with with 40-100 trades, so I'll just give you broad strokes. Having an accountant or a tax attorney review your numbers will, in almost all cases, cost you less than $1,000. If you're talking about $2,000 in income/gains, then obviously that's a non-starter and I'd just go the route you're considering (SaaS), having done good due diligence on the service as you seem to have. If, however, you're looking at $100k in OI or capital gains, I'd say a 1% investment to not owe all of your back taxes + potentially 100% or more in fines in 5-7 years when, potentially, you don't even have that money anymore. As for your second question, I would just say there is no statute of limitations on undeclared income. The logic there is that you aren't incentivized to hide your income for 3 (or 7) years and then get off the hook, and it is difficult for the IRS or state taxing authorities to discover undeclared (as against under-declared) income -- i.e. how would they know about it? Thus, there is no amount of time that can pass such that you are truly free and clear. You can file amended returns for ordinary income you failed to declare with Form 1040X: https://www.irs.gov/pub/irs-pdf/f1040x.pdf https://www.irs.gov/pub/irs-pdf/f1040x.pdf
- joshstrange 6y ago
  Thank you for response, I really appreciate it. I’ll take a look at that form and get it filed out, I have no intention of hiding anything, I just didn’t know any better back in 2014. As of now I’ve made zero trades but I want to pull out the max you can for long term capital gains without getting taxed by that ($40K) and I figured it’d probably spread out the cash-outs to even out the risk. I asked the person that manages my retirement fund about help with Crypto taxes and got the equivalent of a blank stare so I’ll probably need to look online for someone to hire since I don’t know how many people around me specialize in something like that. Thank you again for your feedback. EDIT: As shown in the replies below I misunderstood how long term capital gains were taxed. I though the brackets were based on how much you made off the trade, not based on your income. The $40K number I mention above doesn't have any significance for me in reality. If you make between $40K-$500K you pay 15% on long-term gains.
  - 6y ago
thebean11 6y ago
I highly recommend TokenTax. It's the only service that supported importing a cost basis report I already had from a different service. Support at a few other places didn't even know what I was talking about, and didn't see the difference between uploading cost basis and simply reimporting old trades...
- zburatorul 5y ago
  And I highly advise caution with TokenTax. I chose them because I had ~2k transactions on Deribit, and they promised they can digest them. They don't give out refunds specifically because their website claims they will work with you until you're satisfied. Well, it was clear from the 5th minute they don't have "Deribit support", and I had many email exchanges with them spelling out in detail how their engine misunderstands my transactions (cost basis etc.). I gave them every opportunity to improve, and instead they eventually just ghosted me. I understand it may be unrealistic to expect they will build this capability in three weeks. It's a shame they weren't able to level with me, and talk about the complexity of this. I ended up writing a taxable gains calculator for Deribit myself and would be happy to share it with them.

megameter 6y ago

I have been dealing with a similar problem: Very old holdings that I first traded for back in 2013. It's unfeasible to record what I traded then since it goes through a trail of dead exchanges. I've been filing them as capital gains as I trade them now, dating their purchase time back to the year I originally traded for them(thus making them long-term), and their acquisition price as $0. Marking acquisition price on trades to $0 is consistent with how I've seen the IRS behave in the past when I failed to report stock trades accurately($1mm volume = $1mm taxable when this occurs), and since the prices have increased 1000% in most instances(I buy and hold for years, and while I traded in 2017-2019, I did not trade at all in 2020) the initial cost is easy for me to write off. I plan to use Cointracker's reports going forward.

tldrthelaw 6y ago
This tracks. Being transparent if you're audited will be key. You're trying to keep track of things, and trying to pay what you owe based on the information you have. Just as a heads up for other folks reading this, having a basis of $0 isn't the same as paying tax on the mined value at ordinary income rates (cap gains rate differs from ordinary income rates). Mined coins and bought coins are treated differently owing to how they're acquired.

tldrthelaw 6y ago

Happy to help in general terms here. Generally speaking, risk of audit and high fines and fees go up as the amounts you're dealing with go up. I don't know what kinds of values we're dealing with with 40-100 trades, so I'll just give you broad strokes. Having an accountant or a tax attorney review your numbers will, in almost all cases, cost you less than $1,000. If you're talking about $2,000 in income/gains, then obviously that's a non-starter and I'd just go the route you're considering (SaaS), having done good due diligence on the service as you seem to have. If, however, you're looking at $100k in OI or capital gains, I'd say a 1% investment to not owe all of your back taxes + potentially 100% or more in fines in 5-7 years when, potentially, you don't even have that money anymore. As for your second question, I would just say there is no statute of limitations on undeclared income. The logic there is that you aren't incentivized to hide your income for 3 (or 7) years and then get off the hook, and it is difficult for the IRS or state taxing authorities to discover undeclared (as against under-declared) income -- i.e. how would they know about it? Thus, there is no amount of time that can pass such that you are truly free and clear. You can file amended returns for ordinary income you failed to declare with Form 1040X: https://www.irs.gov/pub/irs-pdf/f1040x.pdf https://www.irs.gov/pub/irs-pdf/f1040x.pdf

joshstrange 6y ago
Thank you for response, I really appreciate it. I’ll take a look at that form and get it filed out, I have no intention of hiding anything, I just didn’t know any better back in 2014. As of now I’ve made zero trades but I want to pull out the max you can for long term capital gains without getting taxed by that ($40K) and I figured it’d probably spread out the cash-outs to even out the risk. I asked the person that manages my retirement fund about help with Crypto taxes and got the equivalent of a blank stare so I’ll probably need to look online for someone to hire since I don’t know how many people around me specialize in something like that. Thank you again for your feedback. EDIT: As shown in the replies below I misunderstood how long term capital gains were taxed. I though the brackets were based on how much you made off the trade, not based on your income. The $40K number I mention above doesn't have any significance for me in reality. If you make between $40K-$500K you pay 15% on long-term gains.
- 6y ago

thebean11 6y ago

I highly recommend TokenTax. It's the only service that supported importing a cost basis report I already had from a different service. Support at a few other places didn't even know what I was talking about, and didn't see the difference between uploading cost basis and simply reimporting old trades...

zburatorul 5y ago
And I highly advise caution with TokenTax. I chose them because I had ~2k transactions on Deribit, and they promised they can digest them. They don't give out refunds specifically because their website claims they will work with you until you're satisfied. Well, it was clear from the 5th minute they don't have "Deribit support", and I had many email exchanges with them spelling out in detail how their engine misunderstands my transactions (cost basis etc.). I gave them every opportunity to improve, and instead they eventually just ghosted me. I understand it may be unrealistic to expect they will build this capability in three weeks. It's a shame they weren't able to level with me, and talk about the complexity of this. I ended up writing a taxable gains calculator for Deribit myself and would be happy to share it with them.