Tax confusion for coin-for-coin trades in the US

I'm trying to wrap my head around the taxes for coin/coin trades I did back in 2018. Recently, I got a letter from the IRS saying I owe them a lot of cash for that year. I'm really struggling to get the numbers right for these trades. So here’s the deal: the year kicks off and I’ve already got some BTC on an exchange with a certain cost basis. Throughout the year, I’m making multiple coin/coin trades, moving in more coins with their own cost basis, pulling out some coins with whatever cost basis applies from the trades, and at the end of the year, I’ve still got some coins left on the exchange that now have a new cost basis. Here’s what I’m breaking it down to: I’ve got my initial coin cost basis at the start of the year, the cost basis for all my trades, the sale price from those trades, the value of the coins I deposited during the year, the value of the coins I took out, and the worth of the coins remaining on the exchange by year’s end. So, to calculate my capital gains or losses, do I just take: (sale price from all trades + cost basis of the coins I withdrew during the year + cost basis of the coins left on the exchange) - (cost basis of all trades + cost basis of the coins I deposited during the year + initial coins cost basis) = capital gain or loss?? Shouldn’t it end up being the same as (total value of coins left on the exchange + value of withdrawn coins) (initial cost basis of coins already on the exchange + cost basis for all deposits)? Does that sound right? It’s kinda tripping me out that buying also counts as a sell since it’s coin for coin. Just trying to figure this out.

Do you not have to work in usd or have you already been converting it? You might have to calculate your profits per sell that profited overall too (like a proportion on each profitible sale). Eg: You make 0.02 in August, 0.03 in October and 0.05 in December.. Your profit would be 0.1 but your fiat profit for each would be different. (and if you make a loss you'd find your mean profit)? This is just how I'd do it if it wasn't much it might not matter.

Yeah I'm working in USD. I am using the USD price at the time of the trade of BTC or ETH (whichever one was the base coin I was trading with) to get the USD price for each trade. But still, unlike trading in USD, when I buy it still counts as a sale because I'm buying crypto when I'm selling crypto. So that makes it confusing. Yeah I calculated all the gains/losses from each individual trade, but I'm just confused on how to add everything up to accurately get my capital gain/loss.

Initially I was subtracting the (sum of the cost basis for each trade + initial coin value that started the year) from the sum of the sale prices of each trade. But now I'm realizing I need to include mid-year deposit and withdrawal values right? And also need to count the value of my coins left over on the exchange at the end of the year (according to the trades that gave them their value) as part of the sale price because every buy is actually also a sell when it's coin/coin trades? I'm not totally sure this logic is correct though.

if you don't mind saying, what exchange(s) were you using? had you completed KYC and provided your SSN? (just curious where the IRS is pulling data for these warning letters!) it depends if you use FIFO vs LIFO vs specific lot identification. https://tokentax.co/help/fifo-lifo-minimization-and-average-cost-explained/ your situation sounds complex. you might wanna hire a company like tokentax. you can dump all your exchange export data on them and they'll crunch the numbers and figure out the ideal cost accounting method to minimize your liability. dealing with coin-to-coin trades manually is a nightmare. it's still the same principle as selling for USD---you're selling for another coin which has a specific USD value. you could think of it as "selling for USD then buying another coin with that USD". that's how the IRS views it. the selling part of the transaction is obviously taxable.

An example: 1. Have BTC worth $1000 to start the year. 2. Buy ETH with $200 of BTC, later sell it back to BTC when it is worth $400. 3. Now I have $800 BTC, $400 ETH. 4. Deposit $100 cost basis value of BTC onto the exchange. So now I have $900 BTC and $400 ETH. 5. Buy ETH with $300 BTC, I don't ever sell this back this year. I now have $600 BTC and $700 ETH. 6. Withdraw $200 BTC. I now have $400 BTC and $700 ETH. 7. Buy ETH with $100 BTC, later sell it back to BTC when it is worth $200. I now have $500 BTC and $900 ETH. Year ends. Note: the actual price of these coins will have changed by year's end, but the value for taxes is locked in with each trade so the stay the same for accounting purposes. So is sale price total: (All trade sale prices: $400 + $200 = $600 plus all withdrawn coins value: $200 plus value of all coins left on the exchange: $500 + $900 = $1400) So that all adds up to a total sale price of $2200 And the cost basis total: (All trade costs basis values: $200 + $300 + $100 = $600 plus all deposited coins cost basis value: $100 plus initial cost basis of coins on the exchange at start of year: $1000) So that all adds up to a total cost basis of $1700. So capital gains is $2200 - $1700 = $500?? Which I supposed can be simplified by not counting the all the trade cost basis and sale prices and just doing: capital gain/loss = (end value on exchange $1400 + withdrawn value $200) - (initial value on exchange $1000 + deposited value $100) = $500 Is this correct?

Coinbase sent them my sell volume from Coinbase Pro back then and now two years later the IRS is like hey we think you owe us over a million dollars. But I also traded on Bittrex, Mercatox and one trade on another exchange. I've done all the account for trades on everything, but just want to make sure I'm adding up the numbers correctly at the end. Also tracking cost basis across exchanges and withdrawals/deposits is a nightmare, not fully accounted for all that. Using LIFO. But its just insanely complex. Thought I was finally done today but now not sure if I did everything correctly.

Alright I think I got a handle on it. I was just way over complicating everything. The original starting value of coins on the exchange already gets calculated as the cost basis for trades when I sell it, and the ending value of all coins on exchange at EOY is already inherent in the sale price of the associate trades that gave me those coins, and values for withdrawals and deposits are also already inherent in the trades associated with them after they got on the exchange and before the left. So it's just the basic sum of trade sale prices minus sum of trades cost basis to calculate the correct capital gain/loss. Simple. The hard part is still just tracking coins sent between exchanges and wallets and whatnot across years and in different amounts.