How is the cryptocurrency cost basis calculated? As a holder, you have to know this.

The approach to finding a cryptocurrency cost basis is generally influenced by three separate external factors: differences in cryptographic regulatory guidance; lack of legally approved cryptographic currency accounting and tax best practices; and the ability to automate and improve accuracy and Intelligent technology that eliminates human error in cost-based outcomes.


Image source:

To help encrypt communities and tax professionals and to educate the world on how to calculate the cryptocurrency cost base, here are the most important questions and answers that cryptocurrency owners must know.

What is the difference between the traditional cost base and the cryptocurrency cost base?

The cost basis is a traditional accounting term referring to purchase price + handling fee + other related purchase costs. The “basic” core of cryptocurrency costs is the same as the traditional cost basis for calculating gains & losses. In essence, anyone and everyone should pay the annual tax from the profits.

Traditionally, when calculating profit and loss, professionals will rely on general ledger software such as quick ledgers, with spreadsheets, calculators, and extensive manual data entry and calculation capabilities. In addition, the traditional cost base has clear rules on tax obligations and compliance, as well as a more understandable financial ecosystem.

This makes the calculations simpler and predictable.

To make it easier to describe the cost base of cryptocurrency, let's take an example: If Jack bought Bitcoin for $400 in 2015, the bitcoin would cost $400. If Jack sells his bitcoin for $2,000 a year later, he will pay taxes based on his $1,600 proceeds. (The fee and other difficulty factors were removed in this example)

· Jack's original price in 2015: $400

· Jack's 2016 fee base: $400

· Jack's bitcoin sales price: 2000 dollars

· Jack's taxable income: $1,600

In order to calculate the cryptocurrency cost basis, the process becomes more complicated. There are thousands of different types of cryptocurrencies that operate differently. The cryptocurrency also contains more variants, such as gas bills that power the transactions in the cryptocurrency network, exchange or transfer fees, mining profits, soft and hard forks, airdrops, and dozens of complex taxable nuances.

Obviously, cryptocurrencies may be more confusing.

Why is the cost basis important to you?

The cost basis can be used to calculate the total annual gains or losses of a company or investor, usually for auditing or tax purposes. In the United States, the government requires and requires all holders of cryptocurrencies to disclose all of their financial assets and report their capital gains tax annually.

In order for the US Internal Revenue Service (IRS) to properly audit and evaluate the financial situation of an investor or business, the IRS will need a complete overview of the asset and transaction history to understand how much money a company or individual makes from the cryptocurrency each year.

By complying with the tax obligations issued by the IRS and effectively and accurately reporting cryptocurrency holdings, gains or losses, cryptocurrency investors reporting their income are not only legally safe, but also tax-free and timely and appropriate Other possible benefits of the report.