3Commas is a leading provider of smart trading terminals and automated trading bots for cryptocurrency investors. The company integrates with major cryptocurrency exchanges to allow users to trade across multiple exchanges via one, unified trading terminal. One challenge that comes with trading cryptocurrency across multiple exchanges is tax reporting. To solve this challenge, 3Commas has teamed up with CryptoTrader.Tax to bring automated gains and losses tax reporting to their users.
How cryptocurrency taxes work
In most countries (including the U.S.), cryptocurrencies are treated as property for tax purposes, not as currency. Just like other forms of property-stocks, bonds, real estate-you incur capital gains and losses tax reporting requirements when you sell, trade, or otherwise dispose of your cryptocurrency.
For example, if you purchased 0.2 Bitcoin for $2,000 in May of 2018 and then sold it two months later for $3,000, you have a $1,000 capital gain. You report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This applies to all cryptocurrencies.
For a deep-dive on how cryptocurrency taxes work, check out our complete guide here.
The challenge for traders
When traders are buying, selling, and transferring crypto on multiple exchanges, from wallet to wallet, tracking cost basis and fair market value data for all of their trades can quickly become very difficult. This is information they need to report each of their trades on their taxes.
Crypto tax calculators like CryptoTrader.Tax exists to automate the tedious tax reporting process.
How 3Commas users can leverage CryptoTrader.Tax
As a result of the partnership with CryptoTrader.Tax, 3Commas users now have the ability to automatically create their needed tax reports for any given year. Users can simply import all of their trade histories and generate their tax reports with the click of a button. The 5 step process to report creation is outlined below.
Step 1 — Select Your Exchanges/ Platforms
Start out by selecting each of the exchanges and platforms that you have used to buy, sell, trade, or earn cryptocurrency. These are the platforms that you will be importing historical data from.
Step 2 — Import
For each platform selected in Step 1, you will see an option to import historical data from it. Import your data from each of these platforms by connecting your account via API key or by dropping in the transaction history CSV file that your exchange exports. Either option works. Once you have imported data from all of your exchanges, you can move ahead.
Step 3 — Other Transactions
Step three is for importing transactions that are not captured at the exchange level. Incoming transactions like receiving coins from mining, staking, interest accounts, or other means should be added as incoming transactions. These types of events result in taxable income. CryptoTrader.Tax generates a complete income report for you detailing all of your mining or staking income that you received over the course of the year in USD, or your home fiat currency, values.
Payments and gifts sent to friends should be added as outgoing transactions within step three.
Step 4 — Review Transactions
Once you reach step four, all of your data will be imported into the system. Your data is ordered chronologically to make it simple to review. Make sure that everything is accounted for within step 4.
Step 5 — Create Your Tax Report
Lastly, generate your completed tax report with the click of a button on Step 5! Included in your tax report is IRS Form 8949, short and long term sales reports, an income report, as well as a complete audit trail detailing how every single taxable event was calculated. Check out an example cryptocurrency tax report here.
Getting started with your CryptoTrader.Tax reports is completely free. You can sign up today.
Originally published at https://www.cryptotrader.tax.
3Commas and CryptoTrader.Tax Bring Automatic Tax Reporting To Users was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.