The above flowchart outlines the steps you need to take based on your filing history and current tracking method. Whether you're a first-time filer or transitioning from Universal Cost-Basis Tracking, it provides clear guidance..
Key Takeaways from the Flowchart:
First-Time Filing Crypto Taxes:
Safe Harbor does not apply to you.
Reconcile transaction data to ensure accuracy.
Use Wallet-by-Wallet tracking, applied by default for new U.S. users.
Existing Tax Payers Using Wallet-by-Wallet Tracking:
No additional action is needed—you’re already compliant.
Existing Tax Payers Using Universal Cost-Basis Tracking:
New regulations require migration to Wallet-by-Wallet tracking in 2025 and Safe Harbor planning.
Reconcile data, resolve warnings, and migrate before January 1, 2025.
Choose an allocation method (Global Allocation or Specific Unit Allocation).
File your crypto taxes by April 15, 2025
If you want to learn more about the new regulation, you can check out our detailed guide here.
If Safe Harbor is applicable to you, continue reading the information below,
As per the regulation, before January 1st, 2025, all investors who have used Universal Cost-Basis tracking method must select one of the below allocation methods to fully migrate their unused tax lots to Per-Wallet cost-basis tracking. The selected allocation method needs to be documented for future reference. Failure to comply may result in potential fines by the IRS.
Safe Harbor Allocation Methods Comparison
The IRS provides two clear allocation methods to help you transition smoothly to Per-Wallet tracking:
Feature | Global Allocation | Specific Unit Allocation |
Deadline | Before January 1st 2025 | Before you make the first trade in 2025 |
Allocation Rule | A reasonable and consistent method based on cost-basis or acquisition dates. | Greater flexibility, allowing you to choose, split, and allocate specific tax lots across different wallets or accounts. |
Advantages | Easy to apply and can be automated | Enables you to customize the allocation to best align with your portfolio and timelines. |
Disadvantages | Inflexible allocation method. | More complex and manual process. |
Kryptos Support | Yes, fully automated allocation and finalized lots report generation. | Yes, only platform in the market with tooling to support this. |
Your Simple Guide to Transitioning with Kryptos
Follow these steps to ensure a seamless transition to the Per-Wallet tracking method using Kryptos.
Step 1: Choose an Allocation Method (Before January 1st 2025)
Note: Kryptos uses Global Allocation as the default method for tax lot allocations. All paid and active users with Universal Tracking will be automatically migrated before the deadline to ensure compliance. Confirmation emails will be sent once the selection has been finalized.
If you are not a paid user or prefer a different method, we recommend using the Safe Harbor Planner tool to make your selection before the deadline.
Start your journey by selecting an allocation method using our Safe Harbor Allocation Planner.
Select the allocation method of your choice. You can read more about the global allocation method and the algorithm logic here.
Click Confirm and you'll see a confirmation pop-up. A confirmation email with relevant documents will also be sent as proof. Download the file, sign and save it for future documentation purposes.
Step 2: Manual Lot Allocations
Note: Only applicable for users who selected the Specific Unit Allocation method - this step unlocks on January 1st 2025.
Review Each Lot: Examine each lot in turn (e.g., Lot #1, Lot #2, etc.).
Assign to the Appropriate Account: Allocate each lot to the relevant account based on your criteria or the platform’s requirements.
Limit Over-Allocation: Ensure that the total allocated amount does not exceed the account’s overall asset balance.
Validate Allocations: Verify that the sum of all assigned lots does not surpass the account’s capacity for the asset in question.
Step 3: Finalized Lots (Unlocks after January 1st 2025)
No manual actions are needed here! This page will show the finalized lots after the allocation is done.
View Allocated Lots: Once the lots are allocated/migration is automatically triggered, you can see the finalized lot allocation here.
Download Allocated Lots: Users will have the option to download the allocation list for documentation or to share it with respective broker platforms when requested.
Switches to Per-Wallet Tracking: After allocation are finalized, all accounts will automatically transition to Per-Wallet Cost Basis Tracking with a starting date of January 1st 2025.
Confirmation Email and PDF
You will receive an email with a PDF attachment detailing the method used for the lot allocations.
This PDF serves as a self-record of how each lot was allocated.
Access Post-Allocation Lots
In the platform’s navigation, go to the Safe Harbor tab.
There, you’ll see a list of all your newly allocated lots.
Key Events After Allocation
Event | Description |
Allocation Method Deadline | Before January 1st 2025 |
IRS Compliance Deadline | If Global Allocation method, unused tax lots need to be migrated and finalized by January 1st 2025. |
Filing Readiness | Keep generated reports securely for filing your taxes or future compliance checks. |
Transaction Updates | Begin tracking all transactions per wallet to comply with the Per-Wallet method. |
Kryptos Support Assistance | Reach out for guidance or troubleshooting during the transition. |
Global Allocation Method - How does it work?
This method uses a uniform and systematic logic to allocate your unused lots.
Sort Unused Lots by Cost Basis:
The system arranges unused lots on a highest to lowest cost basis.
Allocate to Wallets in Order of Smallest to Largest Balance:
The lot with the highest cost basis is allocated first to the wallet (or account) with the lowest balance, then to the next smallest balance, and so on.
This approach is referred to as the “Highest Cost, Lowest Balance” allocation method. The key results of this method:
Lower-cost basis Assets typically remain in large-balance wallets, which often serve as “treasuries” and benefit from long-term holding rates.
Higher Cost Basis Assets end up in smaller-balance wallets, where active trading more commonly occurs (and thus short-term rates are more likely).
Example
Lot #1 (Cost Basis: $4,000) → Allocated to Account A (Balance: 0.5 BTC)
Lot #2 (Cost Basis: $2,000) → Allocated to Account B (Balance: 1.0 BTC)
Example 2
Lot # | Timestamp | Asset | Amount | Total Basis | Price/Unit | Wallet (In/Out) | Resulting Balance |
1 | 01-01-2021 | BTC | 4 | $4,000 | $1,000 | Wallet 1 | 5 BTC (Wallet 1) |
2 | 01-06-2021 | BTC | 2 | $4,000 | $2,000 | Wallet 3 → Wallet 2 | 2 BTC (Wallet 2) |
3 | 01-01-2022 | BTC | 1 | $100 | $100 | Wallet 1 → Wallet 3 | 2 BTC (Wallet 3) |
Frequently Asked Questions(FAQs):
How do I check my current cost-basis tracking method?
Navigate to the Tax Settings section in Kryptos. If your method is set to “Universal”, you must transition to Per-Wallet tracking in accordance with the new regulations.
When will the migration be triggered?
The migration will be triggered during the 1st week of January. You can continue importing earlier data and adding 2025 transactions. Everything will be fixed automatically after the migration.
Do I need to enable wallet-based cost tracking?
No, Kryptos will automatically update this for you once the migration is finalized.
I’ve used multiple tax tools. What should I do?
If you previously used another tool, ensure your data is reconciled in Kryptos. Rely on Kryptos’ reports for your 2024 filings to maintain consistency.
What happens if I miss the deadline?
If you are an active or paid user of Kryptos, you'll not miss the deadline as we have automated the default allocation. If you missed the deadline, the IRS has shared that there might be potential fines.
I accidentally enabled wallet-based cost tracking. How can I fix this?
Simply change it back to Universal and follow the steps outlined above to create the migration.
How can I download a tax lot report showing universal tax lots?
Kryptos will show all your remaining tax lots as of the migration date under safe-harbor page. This report will be available after the migration is finalized.
Can I modify my allocation after submission?
If you have chosen the Global Allocation Method, No changes are allowed once the lots are finalized. If you opted for the Specific Unit Allocation Method, you have the flexibility to change before you make 1st trade in 2025.
I already use Per-Wallet tracking. Do I need to take action?
No action is required if you’ve consistently used the Per-Wallet method.
What if I want to make changes to historical transactions?
If any changes are made to historical transactions, all the calculations will be updated and migration of lots will be done automatically if Global allocation is the chosen method. If the Specific Unit Allocation Method is chosen and you haven't made any trades in 2025, then you are allowed to make changes. It is recommended to reconcile all your transactions and ensure no warnings or errors are present. Pre-2025 transactions will still use universal cost tracking.