Calculating the cost basis of cryptocurrency for tax purposes involves considering purchase prices, transaction fees and events such as hard forks or staking rewards.
In the context of cryptocurrencies, “cost basis” refers to the initial outlay paid for digital assets. It is an important consideration when calculating capital gains or losses from the sale or disposal of cryptocurrencies. The capital gains or losses on an investor’s crypto sale are calculated as the selling price minus the cost basis.
To avoid tax complications, the cost basis must be reported accurately; otherwise, one may have an underpayment or overpayment of taxes, which may result in fines from the tax authorities. Furthermore, accurate reporting is much more important due to the increased scrutiny that tax authorities throughout the world are placing on crypto transactions.
Tax authorities require individuals to declare their cryptocurrency transactions for tax purposes in numerous jurisdictions, including the United States. Penalties and audits may result from inaccurate cost basis reporting. As a result, investors must keep thorough records of all of their cryptocurrency transactions, including the purchase price, the date of the transaction and any additional costs.
