Author Topic: Tax reporting issue for crypto spent from Wallets, and maybe a solution.  (Read 225 times)

jaisonpandey

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A really big issue, for people who want to comply with tax rules and report their crypto capital gain / loss, is when transactions are done from their own wallets.

When trading on exchanges, there is usually no issue, as exchanges keep an order history that can be downloaded, to reconcile all the TX and figure out the capital gain / loss (e.g. with tools like bitcoin.tax . When withdrawing funds from an exchange, if the funds are send to some wallet that you do not control (e.g. to pay for goods or services), you are responsible to report the widthdrawal as it is a taxable transaction.

But when spending cryptos from wallets, this becomes a bigger issue, unless the user manually keeps track of all taxable transactions themselves.

One solution would be to have option, in each wallet, to mark each transaction as "taxable" (or not), e,g, with a check-box in the wallet UI, and the wallet would keep an history of all taxable Tx's, that could later be downloaded as a CSV file, in formats similar to those from exchanges "order history", with the assumption that the crypto is traded against fiat, since that's what tax reporting requires in that case.

A taxable Tx is a Tx where you send cryptos for buying a product or service, or for buying another asset (including fiat).

A non-taxable Tx is a Tx that merely moves funds between two wallets that you control (including to your wallets on some exchanges).

I know many people completely ignore the tax issues and do not want to report crypto gains to the tax-man.

But the risk of a tax audit is too big for users with large crypto assets that can be tracked back from exchanges like Coinbase, that have been ordered to provide their records to the IRS. The same thing will of course happen for European exchanges like Bitstamp.

So, those crypto users that want to report correctly all their crypto capital gain / loss to their tax authorities need to have a easy way to do it when using wallets.

This is an very important point for the wider adoption of crypto, and one that has been completely ignored by all wallet developers.