Missing Transactions = Higher Crypto Tax
Apr 21, 2023Getting your data before you can't
The Missing Transactions Dilemma is one of the most expensive crypto tax mistakes in the game. Most people don't realize it until they are deep in the realization of it.
In crypto there are two kinds of assets:
- Crypto assets (the obvious one)
- The data about the crypto assets (the transactional data)
However, most people don't think about the data piece as being an asset. The crypto data asset can be about as valuable as crypto assets considering the tax impact from missing transactions.
How does missing transactions = higher tax?
Missing transactions require a forensic reconstruction and extensive documentation. Not all forensic reconstructions are the same. Some can be done with a high degree certainty. This means the reconstruction is close to what actually happened. In other cases the forensic exercise is only so good because of the facts and circumstances.
Go conservative
Forensic reconstructions have to be conservative which means in the absence of perfect information, the tax should be calculated in favor of the tax man and not in your favor. Gains should be short-term rather than long-term.
For example, if an amount is known but dates are uncertain, short-term gains and more conservative while resulting in a higher tax rate and more tax.
Don't let tax season drain your profits.
Avoid 7 Costly Crypto Tax Pitfalls
The triple cost whammy
Think of higher taxes as the penalty for not being of top of your back up documentation game. Once you go through the pain you won't let it happen again. Higher tax is not the only cost of missing transactions. You will have create an extensive back up file with screenshots, pdfs of email communications and links to articles about the situation. Your time has a cost and more wheeling spinning means less time focusing on crypto. Once you get into to forensic reconstruction you may have to hire a crypto tax specialist and now you are talking the best of the best.
In summary:
- Tax premium from missing transactions
- Your opportunity cost of wheel spinning
- Hiring and expert at a premium
How does this happen?
Centralized exchanges are not data storage platforms, therefore archive, archive, archive your exchange transactions once a quarter. Exchanges shut down or rug pull and you're left with no access and NO data. You lose your data asset and maybe your crypto assets.
Key Takeaway
Bittrex exchange is shutting down for US customers as of 4-30-23. If you have a Bittrex account, withdraw your crypto and download all transactions (trades, deposits and withdrawals) for all time.
