How to file taxes on Bitcoin using BearTax

Though many have been enjoying the exponential rise in prices of Bitcoin & cryptocurrencies, tracking and reporting taxes is not as easy as selling a bitcoin or buying a coffee. Calculating gains/losses on crypto trading has been a nightmare and here’s why there is a pressing need for BearTax, a reliable tax filing assistant.

Rise in awareness & demand for cryptocurrency

With increasing awareness about secured digital currencies with cryptography techniques aka crypto-currencies, many people got into this mania in 2017. With awareness comes huge demand and have seen an exponential rise in their prices too.

While you might be happy about the gains, it’s equally important to remember that these gains on trading cryptocurrency is considered a capital gain and is taxable in most of the countries. Guidelines for such regulations can be found here.

Photo by Fab Lentz on Unsplash

Problem at hand

If you have made just a few buys and sells, calculations can be just back of the envelope and reporting them would be easy. However, if you have traded(buying and selling) multiple currencies at multiple instances and on multiple exchanges — which again is a most commonly done, according to our recent survey conducted on Linkedin, Twitter & Facebook — we saw more than 80% of cryptocurrency enthusiasts have traded on more than 3 exchanges.

Incentive for doing this is simple — Necessity —Major services like Coinbase, Gemini, Zebpay for getting your Fiat currency(USD, GBP, EUR, INR) onto Bitcoin are limited to have very few trading pairs like just Ethereum, Litecoin and Bitcoincash. Whereas there are other exchanges which doesn’t allow USD pair have a huge list of alternative cryptocurrencies. So majority of traders has the necessity to buy Bitcoin/Ethereum on platforms allowing USD pair and then take it to other exchanges to trade altcoins.

So, as the tax season arrived, parsing through all these transactions, looking at various deposits, withdrawals, buys and sells, and getting the base price to calculate the cost basis with the help of Excel or any other tool can be tedious. Not only a naive trader but an experienced tax professional will face the same issue.

Broken services

Few services are available online which allows you to upload transactions from various exchanges and trying to calculate your gain/loss. However, these tools are crashing when there are huge number of transactions or getting populated with junk or very expensive to use.

Other services like Coinbase tax tool are limited only to calculate gains/losses for trades done on their exchange only, which is not much helpful as 80% of traders use other platforms to trade altcoins.

This calls for a unified tool to address the problems of tax consultants and traders who are handling hundreds of transactions. A unified tool which can integrate with multiple exchanges seamlessly without affecting privacy of users , reliable in maintaining accuracy in calculations and at the same time being reliable dealing with thousands of transactions would be a bliss.

Catering high frequency traders

In a traditional stock market, managing a full-time job and trading both together is almost impossible there is never enough time. But in the crypto-space, given the 24x7 availability and various tools and technologies available for trading, many working professionals have become part-time traders. This has increased the number of high frequency traders (having more than 500 trades in an year, which is just about once a day)

For the proactive and responsible citizens, they deserve to have a reliable tool to report their gains and losses to their respective tax authorities

Automate trading bots

Meanwhile, in this wild west of volatility, there are other clan of traders, who preach the awesomeness in earning money even when they sleep — deploy automated trading bots which work based on different algorithms, trading strategies on deciding when to buy and when to sell, thus making money for the person who’s using these bots.

They generally trade in small predefined fractional quantities but with very high frequency thus amounting the number of transactions from a few thousands to a few hundred thousands, which definitely is a humongous task for any possible human to calculate the gains or losses from these bots.

Our effort to solve this — BearTax

The detailed description above says all the experiences I went through as a trader and the factors I need to consider now for filing my taxes . I personally have tried few trading methods mentioned above and have witnessed few friends using other complicated techniques. All this out of enthusiasm in adopting new technology, understanding all these new platforms for trading and obviously to make a quick buck.

Now, we being responsible citizens, time has come for us to calculate gains/losses and report appropriately to respective tax authorities (US, UK, Australia, Japan, China or India). After trying various solutions available and failing to produce any reliable output, we had to build our own solution to solve this problem.

Here comes BearTax — a robust & reliable tax filing assistant for crypto-traders, which can…

  • Seamlessly integrate with various exchanges like Coinbase, GDAX, Poloniex, Binance, Bittrex, Gemini and more.
  • Churn through your transactions quickly.
  • Fail-safe even when number of transactions run into tens of thousands.
  • Reliable & Accurate with calculations & consistent with methods.
  • Data integrity maintained across the platform.
  • Curated historical data for every given timestamp.
Features of BearTax

So it’s an easy choice for traders and investors to use BearTax, as explained above, it’s tailor made for traders by fellow traders addressing most common pain points combined with the principles of usability and user experience.

Algorithms & Accuracy

Another advantage using our system is the intelligent matching of transactions across the exchanges, thus making it easy to avoid dealing with negative balances or surprising & irregular numbers you see on few platforms.

Our intelligent matching algorithm will match your deposits/withdrawals with similar timestamps and block heights as needed, and considers those matches as non-taxable events. This is a huge win as most of the platforms considers these withdrawals and deposits as individual sell/buy events and calculates gain/loss— this is often referred as force sells.

This will save you a lot of money by letting you know the non-taxable events and taxable events in a detailed manner. If there are any genuine orphan transactions for which our algorithm couldn’t find matches for — it would ask you for a brief review — these could be the results of various reasons like

  1. Referral Bonus
  2. Coin Mining
  3. Paid against sale of goods or services
  4. Gift from friend/family
  5. Received from a friend (they bought it for you)
  6. Coin Fork etc.,

So, BearTax will let you select such reasons for unmatched orphan transactions and appropriate dates will make the cost basis calculations with fair price and gives you accurate and reliable results.

How is it reliable & why should I trust this?

We have been running various tests and have run through 100+ beta users who had transactions ranging from just a couple of buys and sells to most complex trading patterns. As a result of our thorough process, we have been able to identify numerous possibilities of integrity issues and have fixed them all to make our system the most robust and reliable one. We also have tweaked processing performance 10x from our initial version.

Trust is an important factor before using such kind of tools, which actually looks at all your transactions. We take privacy very seriously and your data is secure with us. We will never store your API credentials and they are used only to establish a one time secure connection with an exchange. If you have to import again- you need to provide credentials again.

Data from exchanges are fetched in middle ware on a server and not the front-end, hence creating a secure layer — hence making it impossible to manipulate or steal your data.

All your data is used to make various calculations using our back end code and are stored in a database. This database cannot be directly accessible by even middle ware and can only be accessible by back-end services which are not exposed to outside world. So there is no way of reaching that data making it more secure.

Simple pricing without hidden costs

Our pricing process is simple and affordable.

We would like to encourage small time investors to report their gains responsibly without incurring additional costs.

So, if someone has less than 20 transactions, they can get the summary of gain/loss and details for free. If you are in the USA and would like to get the capital gains document — you can download it for free.

Signup now for early access on https://www.bear.tax

We have no restrictions on number of exchanges you connect, because it’s the basic necessity to trade across exchanges. Irrespective of number of transactions, we would like you to bring in data from all the exchanges and calculate gains appropriately.

However, to substantiate and maintain our processing & computing power, we would like to charge customers with more than 20 transactions. Even this is bracket model and viewing summary of gain/loss is still free.

Our path to build this has not been easy and we enjoy the product we built. As I being the first customer and one of the makers of BearTax, I am sure it solved the issues I faced and it is affordable (Stating the obvious that its free for me ;)) than any other tools available in the space.

More details will be posted on this. As we continue to spread awareness on filing crypto taxes and making it more and more affordable to all the traders out there, we encourage you to sign up for our early access for a discount below

Signup for early access to BearTax & 20% discount code.

More by Vamshi Vangapally

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