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Your crypto business likely uses multiple exchanges, wallets, and maybe even DeFi protocols. Each platform generates its own data, and bringing it all together for accurate financial reporting can feel like a monumental task. The key to unifying this fragmented view often lies in consistently tracking the cost basis of every asset, no matter where it resides. For accounting teams striving for efficiency, robust cost basis compliance for crypto enterprises is critical to cut through the noise. This article will explore how to establish clear methods and leverage the right approaches to manage cost basis effectively, ensuring your financial records are accurate and your month-end close is smoother.

Key Takeaways

  • Pinpoint Your Crypto's Original Cost: Calculate the cost basis—its initial value plus any fees—for each digital asset. This is key for accurate regulatory reporting and reliable financial statements.
  • Pick an IRS-Approved Method & Stick to It: Choose either FIFO or Specific ID for your cost basis calculations. Apply your chosen method consistently and keep detailed records for every transaction.
  • Use Dedicated Software and Stay Current: Implement crypto accounting software to automate calculations and simplify your workflow. Stay informed on new tax rules, like Form 1099-DA, to maintain compliance.

What is Cost Basis for Crypto Businesses?

If your business is involved with cryptocurrencies, understanding 'cost basis' is absolutely foundational. So, what exactly is it? Think of cost basis as the total original value of a cryptocurrency asset when you first acquired it. This isn't just the straightforward purchase price; it also includes any associated costs like transaction fees, commissions, or other expenses directly tied to obtaining that crypto. This complete figure is the starting point you'll use to determine the profit or loss any time that specific crypto asset is sold, traded, exchanged for another crypto, or otherwise disposed of. It’s the benchmark against which you measure financial outcomes.

The Internal Revenue Service (IRS) has made it clear that it views cryptocurrency as 'property' for tax purposes. This classification means that the same general tax principles that apply to transactions involving other forms of property, like stocks or real estate, also apply to your crypto dealings. This perspective from the IRS makes accurate cost basis calculation not just good accounting practice, but a compliance necessity. You'll need this information for correct tax reporting and to ensure your financial statements accurately reflect your company's position.

Calculating the cost basis for cryptocurrencies can often be more complex than it sounds. It’s rarely as simple as just noting down the price you paid. The method of acquisition plays a large role – was the crypto purchased directly, earned through mining operations, received as staking rewards, acquired in an airdrop, or perhaps part of a token swap? Each of these scenarios can have different implications for determining the correct basis. Furthermore, the way crypto assets are transferred between wallets or exchanges can add another layer of complexity. For businesses handling a significant volume of transactions, or those engaging in sophisticated DeFi (Decentralized Finance) activities like liquidity provision or yield farming, this complexity can become a substantial operational challenge. It demands meticulous record-keeping and a clear understanding of crypto cost basis methodologies to navigate successfully. Without a firm grasp on this, you might find your month-end closing process taking far longer than it needs to.

Why Cost Basis Matters

So, why all this focus on getting the cost basis right? An accurate cost basis is the backbone of compliant crypto tax reporting for your business. When you report gains or losses, the cost basis is the number you subtract from your proceeds. If this basis is off, you could overpay or underpay taxes—neither is ideal. Accountants need to consistently apply an IRS-approved method, like FIFO (First-In, First-Out) or Specific Identification.

Infographic outlining 5 steps to manage crypto cost basis.

Beyond taxes, detailed transaction records supporting your cost basis are key for sound financial management. The complexity of crypto transactions—varying fees, multiple exchanges, diverse tokens—can be demanding. Having a precise cost basis for every digital asset ensures your financial statements are accurate. It also gives a clear view of your crypto portfolio's performance, helping with internal decisions and external audits.

How Cost Basis Affects Taxes and Compliance

The IRS treats virtual currency as 'property' for tax purposes. This means standard tax rules for property apply to your business's crypto transactions. Each time your company sells, exchanges, or uses crypto to pay for something, a taxable event usually occurs. The gain or loss is found by comparing the transaction's fair market value against its cost basis.

With digital assets growing, the IRS is more focused on crypto tax compliance. Accurate records and proper cost basis calculation are essential to avoid penalties. New rules are coming: starting in 2026 (for 2025 transactions), brokers will report digital asset sales on the new Form 1099-DA. This form will also include cost basis information when available. This highlights why your business needs a solid internal system for tracking cost basis, ensuring your records are ready and can align with IRS reports.

How the IRS Says to Calculate Crypto Cost Basis

When it comes to figuring out the cost basis for your crypto transactions, the IRS doesn't leave a lot of room for guesswork. Think of it like this: they've given us a couple of approved ways to do the math, and we need to pick one and apply it consistently. Getting this right is a big step toward smoother tax seasons and keeping your financial records in top shape. If you're managing crypto for a business, understanding these methods isn't just helpful; it's a core part of your financial responsibilities.

The good news is that while the details can seem a bit much at first, the IRS has narrowed down the acceptable approaches. This actually simplifies things once you know the rules. Let's walk through the methods they greenlight, so you can make an informed choice for your business and keep your crypto accounting compliant. Making sure your calculations are accurate from the start saves a lot of headaches later.

FIFO: First-In, First-Out

FIFO is one of the two main methods the IRS gives the nod to for calculating your crypto cost basis. It’s pretty straightforward: the first coins you acquired are considered the first ones you sold or exchanged. Imagine a queue; the first one in line is the first one out. So, when you sell some Bitcoin, for example, FIFO assumes you're selling the oldest Bitcoin in your wallet.

The IRS is quite clear that "The IRS only accepts two methods for calculating cost basis: First-In, First-Out (FIFO) and Specific Identification." This means other common inventory methods like Last-In, First-Out (LIFO) or Highest-In, First-Out (HIFO) are off the table for crypto in their eyes. Using a non-approved method could unfortunately lead to issues and potential penalties if you face an IRS audit. So, sticking to FIFO or Specific ID is the way to go for peace of mind.

Specific ID: Pinpoint Your Crypto

The other IRS-approved method is Specific Identification, often called Spec ID. This approach gives you more control, as it "allows selection of which assets are sold, optimizing tax strategy." Instead of assuming the oldest assets are sold first like in FIFO, Specific ID lets you pinpoint exactly which batch of crypto (and its associated cost basis) you're selling. This can be particularly useful if you bought the same type of crypto at different prices and want to manage your gains or losses more strategically.

However, this flexibility comes with a key condition: "This method requires meticulous record-keeping to ensure compliance and accuracy." You need to be able to definitively prove which specific units of crypto were sold, including their acquisition date and cost. This means your transaction records need to be incredibly detailed and accurate, tracking each unit from purchase to sale.

Pick the Best Method for Your Business

So, you have two IRS-approved options: FIFO and Specific ID. Which one should your business use? The most important thing is to "Choose a consistent cost basis method and stick with it." Chopping and changing methods year-to-year can create confusion and raise red flags with the IRS. Once you pick a lane, stay in it for all your crypto transactions.

"Accurate cost basis is crucial for compliant crypto tax reporting," and this can't be stressed enough. Whichever method you select, the responsibility is on you as an accounting professional or business owner to apply it consistently and "maintain detailed transaction records." This detailed record-keeping is the backbone of compliant reporting. It will make your life much easier, especially when it's time to prepare financial statements or if an audit comes knocking.

Common Headaches in Crypto Cost Basis Math

Calculating crypto cost basis can often feel like you're trying to solve a complex puzzle, especially when your business is handling a high volume of transactions or dealing with unique crypto events. It’s definitely more than just subtracting the sale price from the purchase price. Many different factors come into play that can make the math quite tricky for even seasoned accounting teams. For businesses operating in the crypto space, getting these calculations right is absolutely essential for accurate financial reporting and staying on the right side of tax regulations. Let's look at some of the common hurdles that can turn cost basis calculations into a real headache.

Untangling Tricky Transactions

One of the biggest challenges is figuring out the cost basis for all the different ways crypto assets can land in your company's wallets. It's not always a straightforward purchase. Think about airdrops, crypto-to-crypto swaps, rewards from mining or staking, crypto received as a gift, or even assets that come from a hard fork or a token rebrand. Each of these scenarios has its own specific rules for determining the cost basis. As Gordon Law Group points out, "Various transactions... have specific rules for determining cost basis. These are often complex and require professional advice." Untangling these transactions correctly requires a deep understanding of tax guidelines, which can be a real time-sink for busy teams.

Dealing with Wild Price Swings

The crypto market is well-known for its volatility, and these significant price swings directly impact your cost basis calculations. The cost basis is essentially the original value of a cryptocurrency asset, which includes not just its purchase price but also any associated transaction fees. When you're dealing with assets acquired at different times and at vastly different prices, keeping track of the correct original value for each unit becomes a meticulous task. Add in factors like airdrops received at a certain market value, or the complexities of DeFi transactions where assets might be pooled or transformed, and you can see how quickly the calculations can get complicated.

Managing Lots of Trades

If your business handles a large volume of crypto trades, just keeping up with the sheer number of data points is a significant undertaking. Accurate cost basis calculation is fundamental for compliant crypto tax reporting, and this means every single transaction needs to be accounted for correctly. Accountants must consistently apply an IRS-approved method, like FIFO (First-In, First-Out) or Specific Identification, across all trades. This requires maintaining detailed records for every transaction, including purchase and sale details, dates, amounts, and any fees paid. Without a robust system in place, this can easily lead to errors and a lot of stress, especially when reporting deadlines loom.

Juggling Multiple Exchanges and Wallets

Many crypto businesses operate across numerous exchanges and manage multiple wallets—sometimes hundreds or even thousands. This decentralization of assets means your transaction data is scattered across various platforms. Pulling all this information together and ensuring no transaction is missed or double-counted is a major operational headache. The challenge intensifies when you need to track the cost basis of assets as they move between these different platforms. While solutions are emerging to help with accurate transfer matching and maintaining cost basis integrity across various brokers and protocols, it highlights a common pain point for businesses striving for a consolidated and accurate view of their crypto holdings and their associated costs.

Stay Compliant: Best Ways to Handle Cost Basis

Keeping up with crypto tax rules can feel like a constant challenge, especially with the IRS sharpening its focus on digital assets. But getting your cost basis calculations right doesn't have to mean endless nights glued to spreadsheets. By putting a few smart practices in place—and using a reliable crypto cost basis calculator your crypto enterprise can stay compliant and ensure your financial records are always solid.. This approach means less stress during tax season and more confidence in your numbers all year round, giving you back time to focus on growing your business—or just enjoying life outside the office. Let's look at some straightforward ways to manage cost basis effectively.

Keep Solid Records

The absolute foundation of sound crypto accounting is keeping meticulous records. Think of this as your detailed financial diary for every single crypto transaction. The IRS is very clear on this point: you need to "keep meticulous records of all virtual currency transactions, including dates, amounts, and fair market values." They state this is "essential for accurate tax reporting." So, for every purchase, sale, trade, or even a payment made using cryptocurrency, ensure you're capturing these critical details.

Having this information organized and readily accessible will save you a tremendous amount of effort when it's time to calculate gains or losses. It also means you're well-prepared if auditors ever come calling. These good records are your first line of defense and the bedrock of a compliant crypto accounting system. Without them, calculating cost basis accurately becomes a difficult, if not impossible, task.

Stick to One Method

When it comes to calculating cost basis for your business financial filings, consistency is your best friend, and the IRS has specific preferences you need to follow. As highlighted in Cryptoworth's crypto cost basis guide, "The IRS only accepts FIFO (First-In, First-Out) and Specific Identification methods." While other accounting methods like LIFO (Last-In, First-Out) or HIFO (Highest-In, First-Out) might offer useful perspectives for your internal financial analysis, they are not compliant for U.S. tax purposes.

Choosing one of the IRS-approved methods and applying it consistently across all your crypto transactions will simplify your reporting process. It also helps ensure you meet all regulatory requirements. Specific Identification can be very effective if you have the systems to accurately track individual units of cryptocurrency from acquisition to disposal. However, FIFO is often more straightforward to implement, particularly when dealing with high transaction volumes. Whichever method you select, document your choice clearly and apply it uniformly.

Reconcile Your Records Often

Don't make the mistake of waiting until the end of the month—or even worse, the end of the year—to reconcile your crypto transactions. The crypto market operates 24/7, and discrepancies can accumulate rapidly, potentially turning your financial closing process into a lengthy ordeal. Performing regular reconciliations, whether daily or weekly, helps you catch errors early, identify any missing transactions, and ensure your internal records perfectly match the activity on the blockchain and across various exchanges. This proactive approach significantly improves the reliability of your financial data.

Modern tools designed for crypto accounting can streamline this critical task. For example, "Cryptoworth automates classification, cost basis tracking, and audit-ready reporting across wallets and exchanges." This level of automation provides "the speed and peace of mind to focus on strategy—not spreadsheets," allowing your team to manage digital asset accounting with greater precision.

Teach Your Team About Compliance

Ensuring compliance is not just the responsibility of one person; it truly is a team effort. When everyone on your team who handles financial data understands the importance of accurate cost basis calculations and current compliance requirements, you can significantly reduce errors and strengthen your internal controls. This shared understanding is particularly important in the complex and rapidly evolving world of cryptocurrency. A well-informed team helps your processes run more smoothly and minimizes the risk of expensive mistakes.

Investing in proper training and equipping your team with the right tools will undoubtedly pay dividends. As demonstrated in the Camuso CPA case study, "By eliminating manual processes and automating cost basis calculations, Camuso CPA was able to achieve more accurate financial reporting." Moreover, "Cryptoworth's features ensured that the client's financial reports were compliant with regulatory standards." When your team is knowledgeable and supported by robust software, maintaining compliance becomes an integral part of your daily operations, not just a year-end scramble.

Tools to Manage Cost Basis Like a Pro

Choosing the right tools can make a world of difference when you're handling crypto cost basis. Instead of getting bogged down in manual calculations and endless spreadsheets, the right software can automate the heavy lifting. This frees you up to focus on strategy and gives you back precious time—time you can spend with family, on hobbies, or just recharging. Let's look at what makes a great cost basis tool and how it can simplify your work.

What to Look For in Cost Basis Software

When you're evaluating software, accuracy should be at the top of your list. Accurate cost basis calculations are absolutely essential for tax reporting. Remember, the IRS treats crypto as property, much like stocks, so getting your cost basis right is key for staying compliant with regulations. Look for software that can handle various cost basis methods like FIFO or Specific ID. It also needs to process all your transaction types, even those complex DeFi ones that can be tricky. The goal is to find a tool that gives you numbers you can trust, without needing to double-check everything manually. This precision will save you headaches during tax season and any potential audits, making your reporting process much smoother.

Connect with Your Current Accounting Setup

The last thing you want is another piece of software that doesn’t play well with your existing systems. That’s why integration capability is so important. The ideal tool will connect smoothly with your current accounting software, whether it's QuickBooks, Xero, NetSuite, or another platform. For instance, Cryptoworth automates classification, cost basis tracking, and provides audit-ready reporting across your various wallets and exchanges. This means data flows seamlessly, reducing manual entry errors and giving you a unified view of your crypto finances. This kind of integration helps you move away from spreadsheets and toward a more streamlined, reliable accounting process, ultimately saving you time and effort. Cryptoworth is the preferred solution for crypto enterprises because it seamlessly automates cost basis tracking, reconciliation, and audit-ready reporting across all wallets and exchanges—saving your team hours and ensuring full compliance.

Get Reports Automatically

Imagine closing your books in a fraction of the time it currently takes. That’s the power of automated reporting. Instead of spending days pulling data and crunching numbers, the right software can generate comprehensive reports automatically. This is a game-changer for your month-end close. You can cut your close time significantly, often from ten days down to just one, especially when dealing with high-volume digital asset accounting. These reports aren't just faster; they're also formatted for compliance and provide clear insights for decision-making. This means you're always prepared, whether it's for internal reviews, tax filings, or audits, allowing you to operate with greater confidence.

How Cost Basis Hits Your Crypto Business's Wallet

Understanding your crypto cost basis isn't just an accounting task; it directly shapes your business's financial health. Think of it as the starting financial value for every crypto asset you hold. Getting this right means you have a clear view of your profits and losses, which is essential for smart financial planning and staying compliant. When cost basis calculations are off, it can create a ripple effect, impacting your financial statements, tax liabilities, and even your ability to make sound business decisions.

What It Means for Regulatory Reporting

Your crypto cost basis plays a major role when tax season arrives. The IRS considers virtual currencies, including crypto, as property for tax purposes. This means standard tax rules for property apply to your crypto transactions. So, each time you sell, trade, or use crypto to pay for something, you're likely creating a taxable event.

To determine gains or losses for compliance purposes, you need that initial cost basis. Accurate calculations are essential for enterprise-level crypto tax compliance. As an accounting professional, you must use a consistent, IRS-approved method, like FIFO or Specific Identification, and maintain detailed records. Without a precise cost basis, you might overpay on taxes or, even worse, underpay and face potential penalties.

Keeping Your Financial Reports Accurate

Clear financial reports are the foundation of any thriving business, and an accurate cost basis is key to achieving that clarity in the crypto world. When you know the correct cost basis for your digital assets, your balance sheet and income statement will accurately reflect their value and the actual gains or losses from your transactions. This precision isn't just for internal confidence; it’s about producing reliable financial reports.

Automating these calculations can make a significant difference. For example, firms like Camuso CPA discovered that automating cost basis calculations led to more precise financial reporting and helped ensure their client's reports met regulatory standards. Using tools that offer features like cost basis and inventory tracking helps simplify your crypto accounting, ensuring your financial data is consistently accurate.

Make Smarter Decisions with Cost Basis Info

Beyond taxes and financial statements, solid cost basis information empowers you to make better strategic moves for your business. When you have a clear understanding of your crypto assets' performance, you can make more informed choices about when to hold, sell, or acquire new assets. This isn't just about daily trading; it’s about your long-term financial strategy.

Knowing your cost basis is essential for evaluating the profitability of different ventures or investments within your crypto portfolio. It helps you see which assets are performing well and which might need a different approach. This clarity allows you to allocate resources more effectively and plan for future growth with greater confidence, knowing your decisions are built on solid financial data.

Get Ready for IRS Audits and Rule Checks

When you're managing cryptocurrency in your business, being ready for potential IRS audits and rule checks isn't just a good idea—it's really important. The IRS is looking more closely at digital assets, and they expect businesses to have everything in order. Think of it this way: the more organized you are now, the smoother any talks with the IRS will be later. This means understanding what they look for and having a solid system that keeps your records clear and easy to find, so you're not caught off guard.

Being audit-ready isn't about being scared of the IRS; it's about confidently handling your crypto accounting so you can show you're compliant whenever needed. This proactive approach saves you a lot of trouble and stress down the road. It also lets you focus on growing your business, or even just finishing your month-end close faster, instead of scrambling to find documents. With clear records and steady processes, you can face any questions knowing your financial reporting is accurate and solid. This preparation is key to staying compliant and also gives you peace of mind. You can spend less time worrying about possible problems and more time on what helps your company succeed—and maybe even reclaim some personal time for yourself.

What Paperwork You Need

To stay on the right side of IRS requirements, keeping detailed records is something you just have to do. The IRS is very clear that you need to "keep meticulous records of all virtual currency transactions, including dates, amounts, and fair market values." These documents are the foundation of your tax reporting and your main support if an audit happens.

Make sure you have detailed logs for every single transaction. This includes when you buy, sell, or exchange crypto, make payments with it, or receive it as payment. For each one, you'll want to note the type of cryptocurrency, the exact date and time, its US dollar fair market value at that moment, the amount, and why the transaction happened. Having this information ready to go will make tax season, and any IRS questions, much easier to handle.

What Catches the IRS's Eye in Crypto

The IRS is paying more attention to the digital asset world, and some parts of crypto transactions tend to get a closer look. A big one is how accurately you calculate and report your cost basis. In fact, the "historic challenge of tracking cost basis has also been a significant factor driving the estimated $50 billion crypto tax gap," as TaxBit points out. This gap shows why the IRS is so focused on businesses reporting correctly.

Differences between your reported income and the information exchanges send to the IRS, or not having detailed records for many transactions, can also signal a problem. The IRS notes that while "virtual currency transactions are treated similarly to traditional asset transactions, the unique nature of virtual currency necessitates careful record-keeping." If you don't properly account for tricky DeFi deals, airdrops, or staking rewards, that could also lead to more questions. Basically, any sign of incomplete or inconsistent reporting can make the IRS investigate further.

Build a System That’s Audit-Proof

Creating an audit-proof system means putting processes and tools in place that make sure your crypto accounting is accurate and clear from the very start. This isn't just about keeping records; it's about having a trustworthy way to collect, classify, and reconcile your crypto transaction data. Automation is a huge help here, as it cuts down on the human errors that often happen with manual data entry, especially when you're dealing with a lot of transactions.

Look for solutions that offer features like automatic cost basis calculation and inventory tracking. For example, Cryptoworth simplifies crypto accounting by helping ensure your financial reports are accurate and you meet tax compliance rules. Using a specialized crypto accounting platform can help you "cut your close time from ten days to one" by automating how transactions are classified and by creating audit-ready reports from all your wallets and exchanges. This kind of system doesn't just get you ready for audits; it also gives you back precious time.

What’s New in Crypto Tax Rules

Keeping up with tax rules can feel like a constant race, especially in the world of cryptocurrency. The IRS has some updates on the way that will affect how your crypto business handles tax reporting. Knowing what’s changing now can save you a lot of headaches later. Let's walk through these new requirements so you can make sure your business is ready and stays on the right side of compliance. This preparation can bring you more peace of mind and free you up to focus on growing your business—or maybe even planning that vacation you've been thinking about.

Meet the New Form 1099-DA

Get ready to see a new form in your tax toolkit: Form 1099-DA. The IRS is introducing this form specifically to track digital asset transactions, starting with the 2025 tax year. This means brokers, such as cryptocurrency exchanges, will begin sending this form to both taxpayers and the IRS in early 2026. It will detail information like the gross proceeds from your digital asset sales and exchanges, the dates of these transactions, and the value of the assets involved. Familiarizing yourself with this form now will help you prepare for a smoother tax season ahead.

You'll Need to Track Each Wallet

Beginning in January 2025, there's a notable shift in how you'll need to manage your crypto accounting. The new regulations will require a mandatory wallet-by-wallet accounting method. This means businesses must maintain distinct records for each digital wallet they use, rather than consolidating all transactions into one general pool. While this might sound like more detailed work initially, the aim is to create clearer, more precise records. This approach is part of a larger effort to eventually simplify record-keeping for digital assets, making it more similar to how stock transfers are currently handled.

Cost Basis Reporting is Delayed: What That Means

There's a bit of a phased approach to some of these new rules. While brokers will be required to report gross proceeds from your crypto transactions for the 2025 tax year, the mandate for them to report cost basis information is delayed until the 2026 tax year. For your business, this means that for the 2025 tax year, the responsibility of accurately calculating and reporting your cost basis for any gains or losses still rests squarely on your shoulders. This delay highlights how important it is to have a robust internal system for tracking your acquisition costs right from the start.

Simplify Cost Basis Compliance for Good

Dealing with crypto cost basis doesn't have to be a constant source of stress. With the right approach, you can streamline your compliance efforts, making month-end less of a headache and giving you more time for, well, anything other than spreadsheets! It’s about creating systems that work for you, not against you, so you can feel confident in your numbers and your compliance.

Set Up Smooth Processes

One of the best things you can do for your peace of mind and your accuracy is to establish clear, consistent processes for handling cost basis. Think about it: when everyone on your team knows exactly how transactions are recorded and how cost basis is calculated, there’s less room for error. By eliminating manual processes and automating where you can, you’re not just saving time; you’re building a more reliable system. This means your financial reports will be more accurate, and you'll be better prepared to meet regulatory standards without that last-minute scramble. It’s about working smarter, so you can close the books faster and with more confidence.

Use Tech to Stay Compliant

Let’s be honest, manually tracking every single crypto transaction for cost basis is a recipe for burnout. This is where technology becomes your best friend. Software designed for crypto accounting can automate so much of this work. Imagine a system that automatically classifies your transactions and tracks your cost basis across all your wallets and exchanges, preparing audit-ready reports. That’s exactly what tools like Cryptoworth do. They give you the speed and peace of mind to move away from tedious data entry and focus on the bigger picture, like strategy and analysis, instead of getting bogged down in spreadsheets.

Keep Learning and Adapting

The crypto world changes fast, and so do the rules around it. Staying on top of these changes is key to keeping your cost basis calculations compliant. This means continuously educating yourself and your team. When you're looking at software, make sure it’s flexible enough to adapt. For instance, accurate cost basis calculations are the bedrock of compliant crypto tax reporting. You'll want a tool that supports various cost basis methods (like FIFO or WAC) and can integrate smoothly with your existing accounting systems. Features that help troubleshoot missing cost basis information can also be incredibly helpful for those tricky transactions.

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Frequently Asked Questions

I'm still a bit fuzzy on 'cost basis.' Can you break it down simply for crypto businesses? Think of cost basis as your starting point for any crypto asset your business owns. It’s the full original cost to get that asset, including the purchase price and any transaction fees you paid. When you later sell or trade that crypto, you'll use this cost basis figure to see if you made a profit or a loss. It’s really the baseline for your crypto accounting.

The IRS seems pretty strict about how we calculate cost basis. Why only FIFO or Specific ID? You're right, the IRS does have specific guidelines here. They treat cryptocurrency as property, similar to stocks. To ensure everyone reports gains and losses consistently and fairly, they've approved First-In, First-Out (FIFO) and Specific Identification. Sticking to one of these helps make sure your tax reporting is accurate and meets their requirements.

My company has crypto scattered across tons of wallets and exchanges. Does this make cost basis a nightmare? It definitely can feel that way when your crypto data is all over the place! Tracking cost basis accurately when assets move between many platforms is a common challenge. The key is to have a solid system for gathering all that transaction information. Good record-keeping from the start, and often specialized accounting software, can really help bring all that data together correctly.

What's a common pitfall businesses run into when figuring out their crypto cost basis? One frequent issue is not keeping detailed enough records for every single transaction. This includes not just buys and sells, but also things like airdrops, staking rewards, or crypto-to-crypto trades, which all have specific cost basis implications. Without complete records, accurately applying a method like FIFO or Specific ID becomes very difficult and can lead to errors in your financial reporting.

With all these new IRS rules, what's the most important thing I should be doing for cost basis today? The best thing you can do right now is to focus on meticulous record-keeping for all your crypto transactions. Even though some broker reporting rules are phased in, your business is still responsible for accurate cost basis now. Choose an IRS-approved method like FIFO or Specific ID, apply it consistently, and document everything. This strong foundation helps your business stay prepared for evolving compliance requirements.