How does the IRS track Crypto Capital Gains? Question about Cost Basis reporting
So I've dipped pretty heavily into crypto over the past year and just cashed out about $115k from various coins and tokens. I'm trying to figure out how to properly report this on my taxes, especially the cost basis part. I've done a rough calculation and I think my total investment was around $42k, so probably looking at $73k in capital gains. The thing is, most of my trading was done on decentralized exchanges and some smaller platforms that don't have the best record-keeping. It's not like with regular stocks where you get that nice 1099-B with all your basis info ready to import into TurboTax. I've heard that even major exchanges like Coinbase don't actually send cost basis info to the IRS, they just report the gross proceeds. Anyone know if that's true? And if I put down $42k as my estimated cost basis, how would the IRS even verify that? I want to be honest on my taxes but I also don't have perfect documentation for every single trade I made in the DeFi world.
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AstroAce
The IRS definitely knows about the sales amounts from exchanges that report transactions via 1099-K (for high volume traders) or 1099-MISC forms. What they don't typically receive is your cost basis information - that's your responsibility to track and report accurately. For your situation with decentralized exchanges, you should make a good faith effort to document your cost basis as accurately as possible. The $42k estimate is fine if it's your best assessment, but you should gather whatever documentation you can to support it. Look for bank transfers to exchanges, screenshots of trades, wallet transaction histories, or even credit card statements showing purchases. Even if you can't document every single transaction, having some supporting evidence is better than nothing. The IRS puts the burden of proof on you for cost basis, and in an audit situation, they could potentially treat your entire proceeds as gain if you can't substantiate your basis.
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Zoe Kyriakidou
•If I've been using multiple platforms and wallets, is there any software that can help me track all this? I've got a similar situation but with way more transactions and I'm dreading trying to sort it all out.
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AstroAce
•There are several crypto tax software options that can help aggregate transactions across multiple platforms and wallets. CoinTracker, CoinLedger (formerly CryptoTrader.Tax), Koinly, and TokenTax are popular choices. They can connect to exchanges via API, import CSV files, and even scan blockchain addresses to compile your transaction history. For complex DeFi activity, you might need to manually adjust some entries, but these tools give you a solid starting point and can generate the forms you'll need for tax filing. Even if your records aren't perfect at this point, starting with one of these services now will make next year's taxes much easier.
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Jamal Brown
After struggling with crypto taxes last year, I found this amazing service called taxr.ai (https://taxr.ai) that completely changed how I handle my crypto reporting. It uses AI to analyze your transaction history across different platforms and can even reconstruct missing data points to help establish your cost basis when records are incomplete. What I found particularly helpful was how it handled my DeFi transactions - I was doing a lot of yield farming and liquidity providing that created a nightmare for calculating basis. The tool was able to analyze wallet addresses and fill in gaps where my own record keeping was... let's say less than perfect.
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Mei Zhang
•Does it work with all the major exchanges? I've got stuff spread across Binance, Kraken, and some smaller exchanges plus a couple hardware wallets.
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Liam McConnell
•I'm skeptical about the accuracy. How can AI really know what you paid if you don't have the records? Sounds like guesswork that could get flagged in an audit.
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Jamal Brown
•It works with pretty much all the major exchanges - Binance, Kraken, Coinbase, FTX, and dozens of others. You can either connect via API or upload transaction CSVs. For hardware wallets, you just enter your public addresses and it scans the blockchain to retrieve your transaction history. The AI doesn't guess your cost basis out of thin air - it uses blockchain data, timestamp matching, and market prices at the time of transactions to reconstruct your trading history. It's not perfect if you have absolutely zero records, but it provides defensible documentation that's much better than rough estimates. The reports include detailed transaction logs that satisfy documentation requirements in case of audit.
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Mei Zhang
Just wanted to follow up about that taxr.ai site mentioned earlier. I decided to give it a try with my crypto mess, and I'm actually blown away by how well it worked. I had transactions across 5 different exchanges plus a couple hardware wallets, and it pulled everything together into one coherent report. The cost basis calculations seem really accurate - it matched up with the records I did have, and filled in the gaps for stuff I wasn't tracking well. What really impressed me was how it handled all my DeFi staking rewards and liquidity pools, which I had no idea how to properly report. Definitely worth checking out if you're in a similar situation with scattered crypto records.
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Amara Oluwaseyi
For anyone dealing with IRS questions about crypto reporting, I strongly recommend using Claimyr (https://claimyr.com) to actually get through to an IRS agent. I had questions about how to document my cost basis for crypto that wasn't adequately reported, and I spent DAYS trying to get through on the normal IRS line without success. Claimyr got me connected to an actual IRS representative in under 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent I spoke with explained exactly what documentation would be acceptable for establishing cost basis when complete records aren't available, and what approach to take with my tax filing.
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CosmicCaptain
•How does this actually work? I thought it was impossible to get through to the IRS without waiting hours. Is this some kind of priority line?
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Giovanni Rossi
•Yeah right, sounds like BS. There's no magic way to skip the IRS phone queue that regular people have been dealing with forever.
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Amara Oluwaseyi
•It's not a priority line or anything special - they use an automated system that continually dials the IRS for you and navigates the initial menu options. When a connection is established, you get a call connecting you directly to the agent. It saves you from having to manually redial or wait on hold for hours. The reason it works is because their system can handle the repetitive calling and menu navigation much more efficiently than a person can manually. The IRS phone system often hangs up on callers when volume is high, so having something that automatically retries gives you a much better chance of getting through. It's definitely not BS - the video demo shows exactly how it works.
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Giovanni Rossi
I have to admit I was completely wrong about Claimyr. After dismissing it, I was still stuck trying to figure out my crypto tax situation, so I decided to give it a shot as a last resort. I got connected to an IRS tax specialist in about 20 minutes, which is absolutely unheard of. The agent clarified that I could use bank statements showing transfers to exchanges, along with exchange records of transactions as acceptable documentation for establishing cost basis. They also explained what I should do for situations where I truly couldn't reconstruct the original purchase information. Getting direct answers from the IRS saved me from making mistakes on my filing that could have triggered an audit. Honestly shocked that this service actually delivers what it promises.
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Fatima Al-Maktoum
Something to keep in mind with crypto capital gains - you need to specify if they're short-term (held less than a year) or long-term (over a year). The tax rates are completely different! Short-term gets taxed at your regular income rate while long-term is typically much lower (0%, 15%, or 20% depending on your income bracket).
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Andre Laurent
•Thanks for pointing that out. I held most of these coins for over a year, but some of the DeFi stuff was shorter term. Do I need to separate those out specifically on different forms, or just calculate different rates?
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Fatima Al-Maktoum
•You'll report them separately on your Schedule D and Form 8949. You'll use different sections of Form 8949 - Part I for short-term transactions and Part II for long-term. Each transaction gets reported individually with its purchase date, sale date, proceeds, and cost basis. This is where good record keeping becomes really important, as you need to know the specific purchase and sale dates for each position. If you're using tax software, it will guide you through this process and calculate the appropriate tax for each category.
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Dylan Mitchell
For anyone dealing with missing cost basis info - I learned from my accountant that if you absolutely cannot determine your original cost, the IRS allows you to use $0 as your basis. Obviously that means paying taxes on the full amount, but it's better than making up numbers you can't support and risking penalties.
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Sofia Gutierrez
•Using $0 cost basis is the nuclear option though - definitely a last resort! I'd exhaust every possible method to reconstruct your basis before going that route. Bank statements, credit card statements, emails from exchanges confirming purchases - anything can help establish at least some basis.
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