Should you track cryptocurrency activity for tax purposes?

On Behalf of | Feb 14, 2022 | Cryptocurrency

As the cryptocurrency market continues to evolve, the rules and regulations surrounding it also change on a regular basis. Right now, for example, it is wholly the individual’s responsibility to keep track of any potentially taxable activities so they can report it accurately on tax return paperwork. While this might change in the coming years, it is crucial that people take the appropriate steps to avoid running afoul of the IRS in the meantime.

Are these activities trackable?

For many people, cryptocurrency represents a financial diversion – a fun hobby they can explore without facing too great of negative consequences. For others, it represents thousands of dollars and a potential retirement fund. No matter your unique situation, it is crucial that you take steps to accurately track your personal data so it can be reported on tax documents.

While it will soon be a requirement for cryptocurrency exchanges to provide tax documents in the form of a 1099-B, it is not the case yet. Many individuals overcome this reporting deficiency by maintaining their own transaction data. This can be a simple process for those who use a single exchange. Individuals can track transactions and generate reports based on fair market value. For traders who choose to move their cryptocurrency between several locations, this method might not be as straightforward.

For those who use numerous private wallets and brokers, there are multiple tracking programs that individuals can maintain. As software developers gain momentum, more of these programs will be written to feature compatibility with many tax applications for ease of use.

However you decide to track the data, it is crucial that you maintain accurate tax records. No matter your interest, goals or depth of investment, it is necessary to self-monitor and record your activity for later inclusion on tax return paperwork.