reporting crypto sales and purchases

[Summit1]

I have a new client who I have not prepared a return for. He filed for an extension and has sent me his information. He has virtual currency transactions and I have not had to work with these before. 

I was assuming it would be treated like stock transactions. It seems there are fees when you buy it and fees when you sell it. Are these fees used to adjust basis? Client provided me a spreadsheet with his activity in each of the currencies. I was hoping he would have listed the Short Term and Long Term separately but he didn't. 

Before I get back with the client I wanted to be sure I was approaching this correctly. My concerns are how to treat the fees and how to report the sales. If I can get him to re-work his sheet to report Short Term and Long Term separately I think that would be helpful.  

Am I looking at this correctly or am I wrong.

[rbynaker]

You're on the right track.

https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-curren...

If something was reported (Robinhood, for example, provides clients with a report), I tie in to the gross proceeds on the 8949/Sch D.

Unless ProSeries has improved their import feature, you're either entering these all manually or putting summary totals with a "see attached" PDF or mailed it w/8453.  Your attached PDF should mirror the 8949 presentation (so ST/LT separation).  That said, I know there are preparers who just include the totals with no attachment and take the approach (if IRS wants it, they can ask for it.)  Drake has an easy xls import so I copy/paste into a template and import it without having to attach anything.

Rick

[Summit1]

Thank you! So my thoughts on using the fees to adjust basis is a good approach. Since the taxpayer only provided me his sheet I wonder if he does not use an investment company. I will ask him how arrived at his calculations.

[rbynaker · Accepted solution]

Correct, gain/loss net of fees, just like stock transactions.

Practically all of the ones I've seen have been a mess.  I know several preparers who push this back on the client to use a service such as Koinly to summarize all of this and just use their 8949s.  That's probably not a bad idea.

I've also heard in CPE that if the cryptocurrency is spent for personal use (i.e. Starbucks) any loss is a non-deductible personal loss.  I'm not sure I agree with this but it hasn't come up in practice.  My clients just buy/sell (or mine/sell).

[Just-Lisa-Now-]

I make them bring me (or link me) to their Contracker account to get a Sch D/8949 print out for their transactions.

[rbynaker]

Cointracker is another popular one.  There's a third one I've seen but the name escapes me right now.  Pricing generally varies based on number of transactions but I'd expect ~$99 unless they have a bunch of transactions--think day trader (a friend of mine had enough to get into the $249 tier one year).

[Just-Lisa-Now-]

I had one of my clients Invite me to Cointracker, so I created an account, now any client can just send me a link to their stuff, I dont have to wait for them to send it to me.