Mastering Crypto Gains Calculation Across Multiple Wallets and Exchanges

Did you know, cryptocurrencies are cash equivalents, highly liquid investments, and can be converted into a known amount of cash at any time and have a low risk of value change? If you have multiple wallets and want to track and compute your crypto gains, this article is designed for you.

Step 1: Calculate your Gains

1. The IRS treats cryptocurrencies as property, meaning any sale or exchange can trigger capital gains taxes. Misreporting can lead to penalties and interest on unpaid taxes.
2. Knowing your gains helps in making informed decisions about future investments, withdrawals, or reinvestment.
3. Understanding your cost basis — the original value of your assets — allows you to determine taxable gains accurately.

Step 2. Understand Your Cost

Remember, always use the original value of crypto assets. If you are using multiple wallets and exchanges it is complicated, but key points to consider:

1. Different acquisition methods (purchases, airdrops, mining) can affect your cost basis calculations.
2. You should report every transaction with the purchase price, date acquired, and any fees associated with buying or selling.

Step 3: Aggregating Transactions from Multiple Sources

You need to aggregate all transactions from various wallets and exchanges into a single dataset. Here’s how to do it:

1. First, download transaction histories in CSV format.
2. Merge all transaction histories into one spreadsheet.
3. You must include all buys, sells, transfers, and any other relevant transactions.
4. Organize transactions by date to understand the sequence of events clearly.

Step 4: Choosing a Cost Basis Method

1. You can apply the FIFO method, in which an asset you first purchase is the first one that is sold. It is straightforward, but may not always minimize tax liability.
2. You can apply the LIFO method, in which you are assuming that the most recently purchased assets are sold first. The LIFO method may reduce taxable gains in a rising market. But be careful, the IRS does not accept this treatment.
3. You can also apply the HIFO method, which is better for minimizing capital gains taxes. Because you sell the assets with the highest cost basis first. This method is also not well recognized by tax authorities.
4. Another method you can apply is the Average Cost Basis. In this method, you can put the average cost of all units purchased over time. The method is simple, but may not always yield the lowest tax bill.

Step 5: Calculating Capital Gains

1. First, identify which crypto transactions are taxable events.
2. Now subtract the cost basis from the sale price.
3. For example, if you bought Bitcoin for $2,000 and sold it for $3,000 you can calculate your capital gain as Sale Price−Cost Basis.

4. Report this gain on your tax return.

Finally, calculating crypto gains across multiple wallets and exchanges may seem daunting at first. But you can use platforms like ZenLedger and CoinLedger. These platforms allow users to connect their wallets and exchanges directly via APIs or CSV uploads. These platforms also support various cost-basis methods. It depends on you what is the best method that suits you.