Calculating your crypto taxes on Binance? Then this guide is a must-read. Learn how to avoid tax mishaps by understanding cost basis and wash sale rules. Get started below.
Whether you’re new to crypto investing or a seasoned pro, understanding cost basis and wash sale rules is crucial to avoiding unintended tax mistakes and penalties.
In simple terms, the cost basis represents an asset’s original purchase price plus any additional costs at the time of purchase, such as fees, commissions, or other expenses. For example, when you purchase an asset on Binance, the initial cost basis would include the asset’s purchase price and the 0.1% trading fee on our platform. Gains or losses are then calculated by subtracting the cost basis from the asset’s sale price.
For example, let’s assume that an individual purchases 100 tokens of COIN on January 1 and another 100 tokens on February 1. The individual then sells 150 tokens on March 1. Using FIFO, you would assume that the first 100 tokens purchased on January 1 were sold, along with 50 of the tokens purchased on February 1.
The LIFO method can be beneficial in certain circumstances where it allows for realizing smaller gains and, as a result, lower taxes. That said, LIFO can also result in lower cost basis values for long-term holdings, ultimately resulting in larger taxes later on.ACB, or Average Cost Basis, involves taking the total cost of all assets purchased and dividing it by the total number of assets owned, resulting in an average cost per asset.
For example, let’s assume an individual buys 2 BTC for $30,000 and then exchanges 1 BTC for 10 ETH. The individual then sells 5 ETH for $10,000 when the total portfolio value is $50,000. To calculate the cost basis via WAPP, we would multiply the original purchase price by the sale price divided by the total portfolio value
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