Totally confused about entering Crypto transactions in FreeTaxUSA - help with Form 8949!

Thanks for explaining, but I'm still a bit confused. Does FreeTaxUSA have a way to import the transactions directly from Coinbase? I have like 50+ trades and manually entering them sounds like a nightmare. Also, do I need to worry about the wash sale rule with crypto?

FreeTaxUSA doesn't have a direct import feature for Coinbase like some other tax software. If you have numerous transactions, you can enter summary information instead of each individual trade. Look at your Form 8949 from Coinbase and you'll see totals for each category (short-term and long-term). You can enter these as consolidated entries in FreeTaxUSA. Currently, wash sale rules don't apply to cryptocurrency according to IRS guidance, though this could change in the future. This means you can realize losses even if you repurchase the same crypto within 30 days, unlike with stocks. Just make sure you're accurately reporting all gains and losses based on your actual transaction history.

How exactly does it work with FreeTaxUSA though? Does it generate some kind of report that you then manually enter, or does it actually integrate somehow?

Sounds interesting but I'm always skeptical about giving my financial docs to random websites. How secure is it? And can it handle other exchanges besides Coinbase? I've got some stuff on Kraken too.

It doesn't directly integrate with FreeTaxUSA - it analyzes your crypto documents and generates a detailed report that breaks down exactly what numbers to enter and where in FreeTaxUSA. Basically saves you from having to manually calculate and categorize everything yourself. As for security, they use bank-level encryption and don't store your documents after processing. And yes, it works with pretty much all the major exchanges - I know it supports Coinbase, Binance, Kraken, and a bunch of others. You can upload docs from multiple exchanges and it will consolidate everything for you.

Wait, this actually works? How does it get you through the IRS phone system when everyone else is waiting for hours? Sounds too good to be true honestly.

This seems sketchy. Why would I pay a third party just to talk to the IRS? They're a government agency that should be accessible to everyone. Probably just exploiting the system somehow and charging people for it.

It's not magic - they use technology to navigate the IRS phone tree and wait on hold for you. When they reach a human, they call you and connect you directly. It's just saving you from having to sit by your phone for hours. I was skeptical too but the alternative was continuing to guess how to report my crypto correctly. I'd rather get it right the first time than deal with IRS notices later. The service just gets you through to the IRS faster - once connected, you're talking directly to an official IRS representative who can answer your specific questions about crypto reporting.

Do you know if this is actually IRS compliant though? I thought you had to report every single transaction individually. My accountant friend told me the IRS could reject your return if you just do summary totals.

The IRS actually allows summary reporting as long as you have the detailed records available if requested. Form 8949 has a checkbox (Box C) that indicates you're reporting summary information rather than each individual transaction. FreeTaxUSA implements this correctly. Just make sure you keep your detailed transaction records from Coinbase for at least 3 years in case of an audit. The key is that your summary totals must exactly match what would be reported if you entered every transaction individually - no rounding or estimating.

Staking rewards are treated as ordinary income, not capital gains. In FreeTaxUSA, you'd report these under "Other Income" rather than with your crypto sales. The value is based on the fair market value of the crypto at the time you received each reward. Keep in mind that when you eventually sell crypto acquired through staking, you'll report capital gains/losses based on the difference between your selling price and the value at which you initially reported the staking reward as income.