Here you'll find helpful definitions of terms we use in the ZenLedger software. If any term is unclear to you, please reach out to our support team for clarification!
Airdrops are crypto coins given to you from known or unknown sources. Many crypto startups use airdrops as a marketing method as a means of promotion and to raise awareness of their coin. For example, there could be coins available in your account that you never bought, provided for free by the exchanges you use or in a wallet you own. You will have to file income tax on an airdrop reception, and file a gain or loss when you sell the asset.
The cost basis for the airdrop will be based on the fair market price of the asset at the time that the airdrop is received. Airdrops can be legitimate or fraudulent. If you have received an airdrop that is fraudulent, you can mark that transaction as 'Ignore' in ZenLedger.
Any incoming transactions are broadly classified as a buy if the user directly invests US dollars to acquire the cryptocurrency. For example, if you buy Bitcoin with USD, this would be labeled as a Buy.
ZenLedger uses the term External Transfer to describe any external incoming transfer into a wallet or exchange account that you have imported into your account. Put another way, External Transfers are any crypto that is sent into a source you have imported, but not paired as a Self-Transfer with an Outgoing transfer from a corresponding source that you have imported. You can see which transactions are adding up to your External Transfer income by going to Imports > Transactions > filter for Deposit and Incoming.
Forks are the creation of a new cryptocurrency token from an existing one. In the case of forks, you could receive new crypto if you hold the original that the new crypto is forked from. These are taxable events. You will have to file income tax on the currency fork you receive, and file a gain or loss when you sell the asset. Cost basis for forks will be based on the Fair Market Price of the asset on the time the fork is received. ZenLedger accepts fork reception entries through its manual entry interface and selection from list of probable transaction types in the app.
Crypto gifts follow the same tax guidelines as other property and fiat gifts. There is no gain or loss to recognize. Each sender can gift $15,000 (double for MFJ) per recipient, per year, without paying gift tax. When gifts exceed this amount in a single year, the excess gift value will chip away at the lifetime gift-tax-free exclusion of a cool $11.4 million. The average taxpayer will never pay gift taxes because of the large annual and lifetime exclusions. Filing Form 709 is often required to formally claim these exclusions.
Gifts of virtual currency are not taxable to the recipient until the coins are sold, at which point they follow the general rules of selling coins. The cost basis for the sale will depend on the sender's basis, the gift tax the sender paid, and the FMV on the date of the gift, so detailed record-keeping is essential. When the sender's holding period is known and determinable, it will "carryover" to become the recipient's holding period.
Ignored transactions are those that do not appear in your tax calculation. Ignoring some transactions (especially deposits or trades) may affect your capital gains, as it may also omit the cost basis for transactions that use the asset produced by these ignored transactions.
Any incoming transaction where one did not directly invest US dollars is considered Incoming. Incoming transactions must be reported in income taxes. If you have not imported your complete transaction history, you may have Incoming transactions that should be paired with an Outgoing transaction as a Self-Transfer, but that Outgoing transaction is missing from your imports. This is why it is very important to import your complete transaction history!
Initial Coin Offering (ICO)
These are cryptocurrency bought when the cryptocurrency first became available for purchase. These transactions usually do not appear in your exchange history and should be provided to ZenLedger using manual entry. For information on how to add a manual entry, check out our Manual Entry article. Your purchase price in US dollars of an ICO is considered the cost-basis, as you will have to file a gain or loss when you sell the asset.
An "investment" or "investment segment" refers to holding a token for a time duration that causes capital gains or losses, and has a definite start and end date. These are mapped one-to-one in the Grand Unified Accounting sheet, and used to populate IRS Form 8949. One "investment segment" may convert into one or two other "investment segments". There may or may not be a taxable event when that occurs. For example, sending half of a block of your ETH from Exchange #1 to Exchange #2 causes a split of one into two. It does not create a taxable event.
When investors sell multiple assets with different bases, they can either choose to sell the crypto they’ve held the longest first (first-in, first-out, or FIFO), or sell the newest ones first (last-in, first-out, or LIFO). Note that FIFO is almost always used with regards to cryptocurrency, because unless you can specifically identify the cryptocurrency you are selling (which is nearly impossible, given that Bitcoin is essentially an abstraction), it is the treatment that must be used. See our Cost Basis article for more information on these different methods.
This is the cryptocurrency you lost in some reportable hazards. In this case, you may also have to fill out a Lost/Stolen IRS form. Reportable loss is based on fair market price of the cryptocurrency at the time it was bought or received. It is important to note that ZenLedger follows the conservative approach of the IRS and does not deduct Lost cryptocurrency from your capital gains. If you have Lost cryptocurrency, we recommend consulting with your tax advisor on the best approach to treating it if you are wanting the crypto to count towards capital losses. For more information, check out our Lost/Stolen Article.
Cryptocurrency obtained by mining is a taxable event. You will have to file income tax on mined cryptocurrency, and file gain or loss when you sell the asset. The cost basis for mined crypto will be based on the fair market price of the asset at the time the crypto was mined.
An Outgoing transaction is a transaction that is sent out of a wallet or exchange account you have imported into your account, but not received by a different wallet or exchange account you have imported as a Self-Transfer. This is an accurate label if, for example, you were sending crypto to a friend or relative. From a tax perspective, Outgoing transactions are treated as Sells, as they are seen as leaving (or being disposed of) your possession. If you have an Outgoing transaction that you know is actually a Self-Transfer to a different account you own, then you need to make sure that the wallet or exchange account you sent it to is imported into ZenLedger!
Payment received in the form of cryptocurrency is a taxable event. You will have to file income tax on a crypto payment you receive, and file gain or loss when you sell the asset. Cost basis for payment received will be based on the Fair Market Price of the asset at the time payment is received.
A purchase occurs when you buy personal items using cryptocurrency, and is a taxable event. Any loss incurred from a personal purchase will be reported as zero; profits from a personal purchase will be taxed.
A self-transfer of cryptocurrency is a transfer between two of your own accounts or wallets, such as a transfer of funds from your Coinbase account (Self-Transfer (Outgoing)) to your Binance account (Self-Transfer (Incoming)), or from your Exodus wallet to your Kucoin account. Self-transfers are nontaxable events. Check out our Mark Self-Transfers article for more information on this.
Any outgoing transactions are broadly classified as a Sell if the user directly received US dollars from the cryptocurrency transaction. For example, if you sold Bitcoin for USD, this would be labeled as a Sell.
Reportable stoled crypto is based on Fair Market Price of the cryptocurrency at the time it was bought or received. In this case, you may also have to fill out a Lost/Stolen IRS form.
Stolen crypto includes loss of the coins due to wallet or exchange hacks, malware attacks compromising the access of funds, and stolen hardware that stores the funds. You cannot deduct losses due to crypto theft on your tax return.
Rewards you get from staking your token on daily/monthly/or other timely basis.
Outgoing amount you staked, which isn’t taxable. It is outgoing from your spot account but you have it in your staked account. Be sure that when the staked amount is returned to your spot account, the rewards are marked as Staking Reward and the returned amount (equal to the staked amount) is marked as Staking Return.
Return of your staked token, i.e. it is the incoming staked token which was staked out at some prior time. The amount marked as Staking Return should be the same as the amount originally marked as Staking Lockup.
Any transaction that involves the conversion of an asset from one crypto to another crypto is broadly classified as a Trade. For example, if you trade 1 Bitcoin for 20,000 Tether (assuming that is the worth of 1 BTC at time of trade) this is a trade as both BTC and USDT are cryptocurrencies.
For more commonly used crypto terms and crypto tax concepts, check out our extended Cryptocurrency Glossary!