What should I do if I don't have adequate records of my capital gains in 2013? What is the best course of action to mitigate any potential issues from an IRS audit?
I have yet to submit my tax return. Should I just give my best guess? Or...?
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You should at least look at your bank/paypal accounts. Mt.Gox wasn't sending out cash as sale proceeds was it? So you can find exactly how much you got. That is exactly what the IRS is going to do during audit.
Once you know how much you got - the problem is to show how much you paid for that, which is your basis. For that, especially if the difference is not significant (i.e.: you got $100K, but you paid $95K - you want to have $5K taxed, not the whole $100K), you need as much documentation as possible.
Start with your wallet and bank accounts again, and look for the related withdrawals that you can connect to the proceeds. In the wallet, look for arriving bitcoins (you'll need to trace it back all the way to your cash going out eventually, but that's a start) and check the average rates for that day.
If you don't have any reasonable records to establish basis - you'll get taxed on all the proceeds. The proceeds are easier to find.
You cannot use "educated guess".
This goes for any capital gain (or loss) for which you don't have adequate records. This happens all the time.
For tax purposes you need to know the following bits of information for any realized capital gain.
Capital gains (losses) can be realized in two ways.
If you don't know some of the bits of information, write yourself a memo making a good-faith estimate of them. If your grandmother gave you shares of Ford Motor Company, make a guess about the date she bought them, then go online and look up the share price on that day. (Usually the quoted online price takes splits aka stock dividends into account). Then multiply the share price by the number of shares you sold to guess the purchase cost.
Your guess about the day of purchase and the share price on that day are the basis of your good-faith estimates.
Then fill in your good-faith estimates in your tax return.
If the IRS audits you complaining about your estimates, send them a copy of your memo to yourself. Unless your surname happens to be Ford and you're talking about millions of shares, the IRS will probably say "OK." If they don't say "OK," you can ask them to give you an estimate of the tax liability for that item of capital gain.
If you are talking about millions of shares, why, ask your tax accountant to help you sort this out. You can afford a good tax accountant.
I'm not an attorney or a tax accountant.