How to file taxes on cryptocurrency if multiple sources of funding

Forum|Forum|4 years ago
November 26, 2021
10 replies
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Hi! I've been doing some investing with cryptocurrency on the side this year with both my money, along with my fiancé's money. Unfortunately, I haven't been keeping track of what I do with each person's specific money, so now it's all just in a giant pool.

In order to calculate our taxes, I was thinking of setting up a general partnership where we can both specify I put in '$xx' and she put in '$yy' and hopefully settle taxes through Form 1065. I bought some coins last year with my money while she started contributing this year, but haven't created the partnership yet.

Would this be an issue since the EIN isn't created yet, or can I retroactively say that our business was created earlier this year? Or if anyone has any other suggestions! Thanks!

Not A Product Question

Best answer by rjs

It seems to me that using the ratio would be a reasonable way to estimate your incomes for 2021, and it's a lot simpler than forming a partnership. You could file your 2021 tax returns based on the ratio, then start keeping accurate detailed records for 2022 and later. This is just my personal opinion, and not official tax advice. Check with a tax professional and see what they think.

It would be better still, as I suggested earlier, to divide your investments into two separate accounts instead of having everything in one "giant pool."

The IRS is on the lookout for people who aren't properly reporting cryptocurrency transactions. If they question your tax return, you want to have simple clear records so that you can easily and convincingly show that you reported everything correctly.

rjs

Level 15

It seems unnecessarily complicated to form a partnership just to solve the problem of not having good records. Having a partnership might involve fees and filing requirements that you'd rather not deal with. And forming a partnership is not going to solve the recordkeeping problem that you are trying to solve. The tax return for the partnership has to allocate the partnership income to each partner. So you would still have to figure out how much each of you contributed, bought, and sold.

I would suggest instead that you do your best to figure out what each of you bought, sold, earned, and now own. File your individual tax returns on that basis. Write it all down in case the IRS questions your numbers. Then split your account into two separate accounts, keep your money separate from now on, and start keeping detailed records.

curio1Author

Level 2

Ah, darn - the process of creating a partnership looked relatively trivial, but I may have oversimplified it.

I have how much each of us initially contributed, as well as our swap/farm capital gains, and was hoping to just use that ratio to split each partner's income.

I'll probably end up taking your advice and consult a lawyer, see what they recommend, and might be in store for some tedious book-keeping. Unravelling the tangled mess of swaps sounds horrible, since nothing was really segregated into 'buckets' during all of the trades, but hopefully can do better next year. Thanks!

rjs

Answer

Level 15

It would be better still, as I suggested earlier, to divide your investments into two separate accounts instead of having everything in one "giant pool."