How to claim losses from unregulated futures trading?

[OutbakJak]

Hi all! I have exhausted all of the energy I can Googling and searching this and other forums for the answer... I am doing my 2021 taxes now as it was overwhelming with the amount of crypto trading I did unaware of the difficulties it would cause with taxes at first. I have ~$4k in losses from crypto trading for 2021, and after importing my tax report that was made via Koinly, TurboTax PC edition only shows -$200ish in capital losses, meanwhile the Koinly report clearly shows much more loss overall. I assume this is because the remaining losses were acquired via futures trading on Kucoin, and unregulated platform. I cannot figure out how to claim these losses on my return. I have been able to find info on how to claim REGULATED futures losses, but not unregulated.. I can only assume it's due to the losses being via futures trading that it isn't showing as capital loss.

I would also like to know if any additional steps need to be taken to roll over the amount of loss over $3,000 for 2022's taxes.

Any help would be greatly appreciated. Thank you,

-Jacob

[Mike9241]

doubt they are regulated futures 

tax code definition

Regulated futures contracts defined The term “regulated futures contract” means a contract— (A) with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market, and (B) which is traded on or subject to the rules of a qualified board or exchange. since Kucoin is not regulated it would seem what you traded was not an RFC. therefore normal capital gain loss reporting on Schedule D/8949.     

You would not be the first person to have an incomplete import of the transactions. you can see if you can delete the import and try again but with failure you would need to enter the missing trades manually or see a tax pro

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TurboTax automatically carries over any unused capital loss 

[Anonymous]

Greetings, 

Although I am not an expert there are a couple of services I found to be helpful in filing my crypto taxes.

 I have used a trading bot to do a lot of automatic trades that resulted in about 12 thousand transactions.  So I know what you are talking about. I was pulling my hair out for two weeks trying to file my taxes. I found out the hard way that no tax software, not even TurboTax will process that many trades to list on the 8949. If you were able to successfully import all of your trades to TuboTax then you must have been within their limits. I had to use the "aggregated amount" or summary if you will, to initially file the taxes electronically. This was just the total figures for the report. I then had to follow up by physically printing out all of the transactions from a PDF that was furnished to me by Taxbit (251 pages) and mail all of that to a special IRS address located in Austin, Texas. The IRS wants to see all of the transactions no matter how small. 

I used two exchanges, Binance.US and Kraken. I was able to connect those two exchanges to a service called Taxbit.com using the API. They were able to calculate the trades and figure out the cost basis, proceeds, and gains/losses there were.  I don't know if Kucoin is supported by their service, however, It's possible to import a .CSV file of all your transactions to them if you can't use the API method. I would go to Taxbit.com and read what you can on their site, give them a try, and see if you agree with the figures. By the way, I was able to do this at no charge. 

Another website I found useful is a company called Bitcoin.Tax. They have a lot of information and podcasts on their site regarding crypto taxes. 

Another thing I want to mention. Try to do your best to file your crypto stuff to the IRS even if it is not perfect.

The IRS knows that this is uncharted territory and they are not experts themselves. There have been many changes and opinions on the fly regarding this stuff and they're trying to figure all of this out along with the rest of us. If the IRS knows that you made a good-faith attempt to report your transactions you will be in a far better position if for some reason they come calling.

This crypto stuff is definitely on their radar and I know they're very interested in the folks who are not reporting. You may have heard that they have already subpoenaed some exchanges for information on their customers. 

As far as how to claim your capital losses, again I am no expert but there should be a lot of information out there about carrying forward any capital losses. Try emailing the folks at TaxBit or Bitcoin.tax, or if you have a couple of hours, try calling the IRS directly. I did this myself. It took 11/2 hours to talk to 3 people at the IRS and they still could not help me with my crypto questions. They should, however, know how capital losses are handled. 

Hope this helps a little.

[OutbakJak]

Thank you very much for your reply. I know mine is over a month late 😅 I'm aware that Kucoin Futures is "Unregulated," but I could only find information online about how to claim gains/losses for regulated futures contracts, so I had to turn here for help. I DO believe that I have solved this issue for myself now, though!

I am going to detail my findings in a separate comment for anyone who may stumble across this looking for the answer, so it's concise as possible.

Thanks again @Mike9241  for your reply!

[OutbakJak]

Thank you so much for your help, @Anonymous . I believe I have found the solution to my issue, which was simply a setting on the Koinly Tax Reports page which removes all derivatives (Margin/Futures) from your capital gains/losses "in case you want to claim these separately," no idea why they'd default to that setting but.. hopefully that's all I needed. My total losses are now showing correctly in the report! I'm posting a more detailed solution for future people needing help with this in a separate comment. Thanks again 🙂

[OutbakJak · Accepted solution]

**I have found the solution to this issue**

Preface: I had believed that either Koinly or the TurboTax software had made an error in reporting my futures transactions, however I realized by searching for more information on a category of gains in Koinly labeled as "Other Gains," that there is simply a setting (look on the right side of the Tax Reports tab in Koinly, where it says "Settings," then beneath it, "These settings are used to calculate your gains. To change any of these click here") that will remove all Margin/Futures/Derivatives transactions from your Capital Gains amount just in case "you prefer to declare such gains separately."

The setting that needs to be changed is called: "Treat other gains as capital gains"

This needs to be ENABLED in order to include futures/margin/derivatives trades into your capital gains.

In short, you can simply change this setting if you're in the USA and have Margin/Futures transactions and it will include them in your report. I believe that this is all I needed to do. Koinly *REALLY* should just have this setting enabled by default for USA citizens.. I'm not sure why anyone would wish to claim these things "elsewhere" or where they'd be claimed, but I know that it's CERTAINLY not the simplest route so it's silly to default to having it disabled.

I hope this helps someone else in the future!

-OutbakJak

[Lou1820]

This is really helpful thank you.  I too am looking to import futures transactions into turbotax via koinly.  I get the right total loss number, but if I look at the .csv file it produces, it has no itemized transactions for futures.  Have you, or anybody else found out how to deal with this?  The whole point of koinly is I want an itemized transaction list of my futures so I dont have to do it myself.

[katiecompton]

Thank you so much for taking the time to post about this issue! This has been so helpful for me today! Sending you a big glass of virtual red wine and a heartfelt cheers 🙂

[OutbakJak]

You are so welcome! I was really starting to worry I'd have to hire an expensive crypto tax specialist on top of already paying ~$300 for Koinly so I'm happy to have helped even 1 person to avoid all that 🙂