The best tool that you can use is a tracker or aggregator such as Coinbase, but there are several others online as well. This will allow you to keep track of your cost basis whenever you buy, sell, or trade your cryptocurrencies. A good tracker will work across multiple platforms.
Often times, due to the large number of transaction and fractions of coins in each one, trying to track basis at the end of the year is a nightmare. By using a tracker, basis is kept in real time with each transaction.
The reason that basis information is needed, is so that you only pay tax on the amount of gain that you realize whenever you sell or trade your cryptocurrency, rather than the entire amount.
Thanks Ryan. That's great to hear. Makes total sense. Given crypto is a public ledger, I was wondering if there existed any tool to simply scrape this data to generate your cost-basis automatically.
There is not any tool that will simply "scrape data" from all platforms to produce your basis information without some sort of guidance input from you. That is where the trackers come into play. You will need to link them with your trading accounts so that they know what data to look for.
I think such a tool might be more useful to generate a taxable income report for staking or mining nodes. For example, calculating the price of the asset at the time your were given the reward by the network. Are you aware of anything like this?
Most trackers do differentiate between capital transactions, staking, and mining.
For income tax purposes, staking income will be the fair market value of the coins at the time that they are earned, and reported as other income.
Mining income will fall into either other income or active income based on individual facts and circumstances. Generally speaking, if you are mining for profit, i.e. have dedicated mining rigs, then this is considered to be active income, and is reported as self employed income on a Schedule C. If not, such as if you are mining on a idle pc, it would be considered other income.
Either way, the amount of income is the fair market value of the coins whenever they are earned.