Importing your complete transaction history:
It is very important that you upload your complete transaction data starting from your very first crypto transaction! This includes any exchange accounts or wallets you own and have interacted with (e.g., made deposits, income, withdrawals, trades, transfers, etc.). If you leave anything out, the software will have missing data, which will cause your tax calculation to be inaccurate.
The IRS view of cryptocurrency is unique in that crypto is treated like fiat currency in some parts of the tax code and like property in others:
The currency treatment means that crypto income, dividends, interest, and gifts must be reported.
Property treatment means that capital gains and losses due to changes in value need to be reported.
Due to this mixed treatment and the volatility of coin values, ZenLedger cannot accurately calculate your tax liability without a full chain of custody for every coin, and we would not be liable for any misstated tax liability. Check out our Crypto Tax article for more information on how cryptocurrency is taxed!
Notes:
If you are in the process of resyncing your transaction data and have an exchange or wallet that you did not interact with at all since your last import (including Self-Transfers), then you do not need to resync that source, as there are no new transactions to import. For more information on resyncing, check out our Resyncing Your Sources article.
Even if you did not make any sell transaction in the past, it is still important to import previous years' transaction data for a given source as incoming coins (e.g., from purchases, trades, gifts, forks, or income) contribute to the cost basis, and this basis establishes the "starting point" for calculating gain and loss.
Example:
The example below shows a coin sold for $900 in 2019.
The coin was originally purchased in 2016 for $500.
The accurate gain on the sale is a $400 Long-Term Capital Gain ($900 sale minus $500 basis).
Without the 2016 transactions, the conservative position is to record the full $900 as a short-term gain ($900 sale minus $0 basis).
In a worse example, imagine the same coin was purchased for $1,800 in 2016.
The accurate result is a $900 long-term capital loss ($900 sale minus $1,800 basis) which offsets capital gains from other assets to reduce overall tax liability.
Without a starting-point basis transaction entered in ZenLedger, the conservative position is a $900 short-term gain ($900 sale minus $0 basis) which is the opposite of the desired and accurate result.
In Conclusion:
In US tax law, a capital gain is the excess of the sale price minus the amount you invested in the asset (i.e., basis), so you never pay tax on the return of capital. Without this starting point of how much you invested, many CPAs would agree the most conservative tax position is to record the full amount as short-term capital gain, which results in the highest tax rate for capital gains and is not at all favorable to you.
When calculating Capital Gains/Losses, a complete record is accurate, and an accurate record is always more favorable to you than assuming a $0 cost basis!