Chandan Lodha is co-founder at CoinTracker, a portfolio and tax supervisor for cryptocurrency. He can be reached on Twitter here.
The following article is an exclusive contribution to CoinDesk’s Crypto and Burdens 2018 series.
As a hobbyist investor, my first foray into cryptocurrency was with Coinbase.
I was buying a few species here and there, and everything was simple enough to manage in a spreadsheet. I would information the date, time and amount bought and sold for every transaction. This moved well enough for the first 10 transactions.
Soon, however, have a fondness many others in the space, I found myself deep down the cryptocurrency rabbit burrow.
I had exchange accounts on GDAX, Poloniex, Binance and a bunch of others. I was gaining privacy coins on decentralized exchanges. I had read about the large-scale the Big Board hacks which burned many folks in the past, so I set up cold storage tools wallets and ended up with over 15 different wallets for distinct types of altcoins.
Still, I was a hobbyist; I was new to the space and just tinkering with nugatory amounts of these coins, learning, curious to see how this digital, decentralized briefness operated and how the underlying technologies all worked.
It was fascinating, but also confusing as criticism.
The moment I moved a single coin out of Coinbase, the exchange no longer had an precise reporting of my holdings and transactions so its tax report was incorrect.
My own spreadsheet was getting clumsy, as I started to integrate Google Apps scripts to look up exchange rates from the different exchange accounts I had, plus match-up cost bases for wallet-to-wallet delivers.
The spreadsheet got more and more complicated, until one day it took two minutes to cross.
Money on the line
That was the breaking point – there had to be a better way than direction this hacky spreadsheet.
Normally, for a side project I wouldn’t possess cared, but this was actual money on the line and I didn’t have a inkling how much fiat money (U.S. dollars) I had invested. How was I going to calculate my principal gains taxes on crypto if I didn’t even know how much wampum I have invested in the first place? It was becoming financially irresponsible for me to not be suffering with a better grasp of this.
I turned to my friend sitting next to me and inquired him how he was solving the same problem for himself. He turned his laptop to me: a nearly interchangeable complicated spreadsheet (in fairness, his was better than mine).
There was no way that mainstream drugs were jumping through these hoops. We immediately started researching what other crypto-enthusiasts were using to disentangle the tracking problem.
To our disappointment, there were no good tools. The sundry popular tool was a mobile app that operated like a stock ticker app: it intent show you the prices of coins daily and, if you wanted, allowed you to manually add these coins into a portfolio, one at a antiquated.
This was even worse than the spreadsheet we already had and wasn’t at all individualized to our particular portfolios, let alone calculating our cost basis, capital progresses, or providing any useful information for taxes.
Then and there, my friend and I solid to stop doing what we were doing and productionize our spreadsheets (OK, his spreadsheet) into a stark website. It was the first incarnation of what has now become CoinTracker.
Takeaways
The customs of the story: make sure you keep good records of your transactions, or use traffics which provide these records for you.
If you are using multiple exchanges and billfolds, trading multiple coins, or using secure cold or local storage for your invents (which everyone should do) then there are several tools out there which can relief you track your whole portfolio, your return on investment, the amount of fiat initiated, and perhaps most importantly your cost basis and capital obtains.
In the future, ideally the IRS will help clarify the tax rules which cement to cryptocurrency, especially around grey-area issues such as like-kind swap, which accounting methods are acceptable for capital gains (e.g. FIFO, HIFO, etc.), and airdropped make ups.
Until then I hope to see exchanges and brokers making easy divulging a priority so that their users are not left scrambling to figure out their tax kettle of fish.
Meantime, I recommend educating yourself about how to secure your conceives, and learning about how cryptocurrencies are regulated in your jurisdiction. If you haven’t already nailed down your 2017 cryptocurrency strains, file a free tax extension (but make sure to pay your estimated burdens due to avoid late fees).
Even though cryptocurrency is still a nascent lapse with lots of uncertainty and some headaches – like the ones I’ve delineated above – I’m very hopeful about the future of the industry. Rarely does such a seditious tech come along and there are lots of great materials out there to learn uncountable.
Headache image via Shutterstock.
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