What is cost basis in crypto taxes?

One of the most misunderstood concepts in crypto taxes is cost basis or, simply, what you paid to acquire a crypto asset. It's a very important number because you have to know what it is to know how much you owe in taxes. What is cost basis?

What is crypto tax & how does it work?

In the case of crypto tax, the cost basis is the original price plus any related fees, of the crypto on the day you took ownership of it - whether you bought it, were gifted it, or (sometimes) had it airdropped to you. When calculating the cost of an asset you purchased, you can also add any transaction fees you paid when you bought/sold it.

What if I don't know the cost basis of my cryptocurrency?

If you don’t have information on the cost basis of your cryptocurrency, you can estimate it by finding the historical price of your cryptocurrency at the time that you acquired it. If you don’t know the historical price of your cryptocurrency, you may need to treat the cost basis of your crypto as $0.

How to avoid a crypto tax audit?

In general, the best rule of thumb to avoid an unwelcome audit is to pick one cost basis method and stick with it every financial year for consistency. All this said, some countries give specific guidance on which cost basis methods you can use. We’ll look at how some tax offices around the world calculate crypto taxes.