Are "Gains" really Capital Gains or Cost Basis?

I notice my current “gains” for 2021 is somewhere in the $5k region but that doesn’t sound right to me so I’m looking for some clarification. See this screenshot:
Screen Shot 2021-02-13 at 5.17.15 PM

Wouldn’t gains be the profit? The difference between the dollar value of what you bought the coins for and dollar value what you sold them for right?

We’re not even 2 months into the year and I know that I haven’t sold anything that would have netted me a $5,000+ profit. The total value of coins I’ve exchanged for others could very well be 5k, but definitely not a gain as far I’m concerned.

I’ll give an example, often I’ll put USD from bank account into a fiat on ramp exchange like Coinbase, then I will trade that USD for the equivalent amount of XLM cause its cheap to send. I will then send that XLM to another exchange and trade it for USDT to then buy a different crypto currency. So really it’s total of 3 transactions (not including the withdrawal) before I have the desired coin. [(1.USD → XLM)(2.XLM → USDT)(3. USDT → Desired Coin)] The difference in value should be minimal so why does Cointracker believe that I’m already $5k in profit when I really don’t think I am.

I have sold a few cryptos here and there from last year that have appreciated but just nowhere near that value of 5k. If this is just the cost basis, it shouldn’t be considered a gain as far as I can comprehend.
Can someone please help me understand this better?

I sure don’t want to pay taxes on gains I didn’t really net for myself. I’m concerned that number will grow significantly through out the year as I swap cryptos for other cryptos. I wish to be in full control here and I don’t currently feel I am. I’d like to understand how this system comes up with that number. Please help! @Chandan .

Thank you for reading my post.

So I’ve been digging and still don’t understand all of this FIFO, LIFO, HIFO jargin but I did change the settings from “universal” to by “wallet” I don’t know if this is the right way to do it because I’m afraid all gains will be taxed short term but it seems to also make sense. I realized the XLM I sold was being realized as a gain from the first XLM I ever held instead of teh XLM that I had literally just purchased, at least I think thats whats going on.

Now my gains look far more realistic to what I feel they should be, take a look the new screen shot after recomputing with the by wallet setting, not even $1000 which seems accurate:
Screen Shot 2021-02-13 at 9.44.06 PM

Can anyone share their experience? Who uses the by wallet setting over universal? Does this create an accurate tax report for the IRS? are you using FIFO, LIFO or HIFO and why please?

Thanks!

Let’s say you have 100 bitcoin that you purchased when they were $5k/ bitcoin and you also wanted to day trade to profit from short term volatility. Let’s say you bought 1 btc today at $46k and sold it later in the afternoon for $48k. If you used first in first out (FIFO) method, you would be taxed on the difference between your first purchase ($5k) and $48k (the price you sold it at) for a taxable gain of $43k; whereas, with last in first out (lifo) you would be taxed on a $2k gain ($46k purchase price - $48k selling price).

CoinTracker is probably reporting that gain because you sent the coin to another exchange that CoinTracker isn’t connected to. If you spend or sell your crypto, it’s a taxable event. If you change that transaction to a transfer since you technically didn’t spend it, it will not report as a gain.

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Thanks for the help here Niko, I appreciate it! I’m tested out Universal setting with LIFO, I’m feeling that might make the most sense. Is that what you do? I think By wallet just complicates things because then it doesn’t really know what is actually what. I am a HODLer and a Trader so trying to understand what makes the most sense. I guess I should hire a CPA, damn it more expense I don’t want.

Anybody else care to share their settings and why? This conversation could help many of us wrap our heads around it.

Have you every transferred coins after buying them? I don’t mean selling them just sending them to an external wallet then sending the coins and depositing them to an exchange that cointracker.io is tracking? Make sure it is set to transfer otherwise it will treat a withdraws as sells and deposits as purchases and mess with the cost basis that you acquired them at. This is something you have to go and manually do but it doesn’t take that long. And the software keeps track of calculating everything after that.

@Niko’s answer above is right. Crypto-to-crypto trades are taxable and count as capital gains in the eyes of the IRS (and most tax authorities).

Here’s more info on the different cost basis methods.

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Yes as far as I know all of them should be marked as Transfer. Now I am beginning the process of overlooking every transaction from the last four years (thousands of them) to be sure of that, very tedious and time consuming.

In my search I noticed some odd things around the cost basis of USDT, can anyone shed some light please? I’ll include some examples with low balances so that shouldn’t be a big deal for me sharing on the forum.
Screen Shot 2021-02-19 at 5.21.23 PM

Here I sold some KNC at a loss from what I bought it at, the trade ended me $58.38USDT but why is cost basis $55.82? Do I need to edit custom cost basis for every trade that uses USDT?

Here is another:
Screen Shot 2021-02-19 at 5.10.01 PM
In this trade I sold something for $500 USDT but the cost basis shows $600, how could that be?

Is the solution just editing every incorrect USDT cost basis with the actual amount of USDT?

Another question regarding LIFO, if I make a transfer to another wallet will it count that crypto as the same crypto from the previous wallet?

For example let’s say I’ve held a coin in a wallet for 2 years, but now comes time to sell it. So I transfer the coins to an exchange and sell them but because it was the “Last In” to the exchange would it then be considered a short term gain when in reality its a long term gain or would it be able to track the coins from the previous wallet and cost basis from the original purchase 2 years ago? In reality I purchased the coin on an exchange 2 years ago, transferred it a wallet, now transferred back to an exchange and sold it.

I currently have my settings as Universal and LIFO. I’m still getting gains that don’t make any sense, I believe changing the setting back to "by walle"t would fix that but the above situation has me hesitant because then I believe it will count every transaction as short-term and not track it to its source and original cost basis of when the coin was acquired.

Also will the IRS care or raise a brow if I file with LIFO this year when last year I filed with FIFO?

Thanks for any help you can offer y’all, much appreciated.

Matt