Cost Basis Calculation for CashApp and Bitcoin - Paying Crypto Taxes

July 11, 2022
Knowledge Center » Blog » Cost Basis Calculation for CashApp and Bitcoin - Paying Crypto Taxes

When you buy Bitcoin, CashApp uses your cost basis information to calculate your gains and losses for tax purposes. When you sell or spend your Bitcoin, CashApp will show you how much profit or loss you made on the transaction.

To see your cost basis information inside of CashApp:

Tap the Investing tab on your home screen Tap Bitcoin Tap the three dots in the upper right corner Tap Cost Basis You can see your cost basis information for all of your past Bitcoin transactions here

The cost basis is the original value of an asset for tax purposes. When you sell an asset, the capital gain or loss is calculated by subtracting the cost basis from the proceeds of the sale. If you have a loss, you may be able to deduct it from your other income on your taxes.

If you bought Bitcoin before 2018, you may need to adjust your cost basis information. The IRS has specific rules for how to calculate the cost basis of cryptocurrency that was purchased before 2018. For more information, please see the IRS guidance on cost basis calculation for cryptocurrency.

When you sell or spend your Bitcoin, CashApp will use the information from your cost basis calculation to calculate your gains and losses for tax purposes. You can see this information in the app by tapping on the three dots in the upper right corner of the screen and selecting "Cost Basis."

General overview of Crypto Cost Basis

When it comes to taxes, cryptocurrencies have been the source of a great deal of uncertainty. Despite the IRS' current tax guidance being unclear, thousands of letters were sent out to crypto traders and investors advising them to pay their taxes or face penalties and other repercussions.

Let's look at how the bitcoin cost basis and tax calculator works; as well as some of the difficulties typically encountered while keeping track of cost basis—particularly across various wallets and exchanges—as well as how to overcome them.

Calculating Crypto Cost Basis

The total amount you spent to obtain an asset, including the purchase price, transaction costs, and brokerage or exchange charges, is known as your basis (CB).

Crypto CB Formula:

(Crypto Purchase Price + Fees) / Quantity

For example, let's assume you bought $200 in Bitcoin (BTC) at a cost of $20,000. Based on simple math, this means you would own about .01 BTC. However, in most modern transactions, exchange costs will be appended to this purchase. Let's say that for this situation your fee was .02%, which is what it would be if you placed limit orders on FTX. (See our full crypto exchange fee guide here.)

That would mean you'd have also paid a fee on this transaction of $.04, bringing your total costs up to 200.04 for the .01 bitcoin. This is your cost basis for that quantity of BTC. On a whole coin basis, you would divide $200.04 by .01, brining your 1 BTC cost basis to $20,004 per coin for this transaction.

In the case of cryptocurrencies, the cost basis is determined by this equation. However, this is only a consideration while determining your overall tax burden – Are you using FIFO, LIFO, or HIFO?

HIFO, LIFOM, FIFO

FIFO, known as First in First Out, calculates the cost basis for the purchase of your oldest (first) crypto held in your wallet or exchange against the cost basis of the sale you just made.

LIFO, or Last in First Out, calculates cost basis for the sale as the cost basis of the most recent (last) crypto you acquired.

Finally, HIFO, or Highest in First Out, calculates cost basis for the sale as the cost of the most expensive crypto transaction you purchased first.

Not to worry if your eyes glazed over. When you create an account with Ledgible, the program handles all of this for you, including setting up a tax filing system that is completely automated.

Read our full Cost Basis Guide Here

About Jacques Potts

Jacques is Sr. Marketing Manager at Ledgible and an experienced financial author, marketer, and crypto expert. His work has been featured on The Street, Project Serum, FirstTrade, and Investr.

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