US investors are having to pay more attention to reporting taxes on cryptocurrency. With roughly 16% of the adult population investing in cryptocurrencies, and this market expected to massively grow, the US government has ramped up its efforts to get its cut of the pie. The IRS first drafted its cryptocurrency tax rules back in 2014, and Washington has recently given the IRS another $80 billion to track and catch tax evaders.
However, crypto taxes aren’t easy to wrap your head around. Doing them properly often involves accurately reporting complex transactions from across a large number of crypto platforms. To get it right without greatly “taxing” yourself, you need the right software.
But just how do you pick the right software? Throughout this series, we’ll outline all of the boxes your software needs to tick to truly make calculating your crypto taxes both simple and accurate. In this first installment, we talk about how you can reliably crunch all of your data.
Check Compatibility With Crypto Platforms
The critical first step in filing your cryptocurrency taxes through tax reporting software is to collect and import your transaction data from across multiple exchanges and wallets. This process may look straightforward, but there are some essential steps you need to take to ensure accuracy.
First, you have to check how many crypto exchanges and wallets the software supports. Cointelli, for example, supports a considerably larger number of major crypto exchanges than many other competitors — and with full import capabilities. Examples of exchanges supported by Cointelli include major ones, like Coinbase, Binance, and KuCoin, but also include many of the more niche exchanges. To add to this, Cointelli also features support for at least 15 blockchains, including major ones like Bitcoin, Ethereum, and even Dogecoin.
CSV File Import Test Results
Green: Supported | Pink: Not Fully Functional | Red: Not Supported
Second, you need to check whether the software supports multiple ways of importing transaction data from each exchange. Otherwise, you won’t be able to automatically import your transactions, and will instead have to go through the cumbersome process of uploading them using the forms provided by the software — if any are even available.
It’s just as important that you check how easy each platform makes it to retrieve and import your transaction data, since each exchange and wallet provides different importing methods that include CSV and API. Certain crypto tax software solutions have a difficult time properly importing data from CSV files and API keys. Sometimes, the format is incompatible, or credentials can’t be properly authenticated.
Cointelli not only offers support for more wallets and exchanges but also provides the easiest methods of importing transaction data from across these platforms. This makes Cointelli very easy to use for first timers.
Confirm Data Loss Resolution Capabilities
Third, you should be aware of the data loss that may occur when importing transaction data into the crypto tax software. There are many thousands of cryptocurrencies and dozens of cryptocurrency transaction types worldwide (e.g. buy, sell, cashback, interest). However, the symbols for cryptocurrencies can vary across exchanges. For example, Bitcoin can be marked as BTC in some platforms but as XBT in others. Most cryptocurrency tax software platforms ignore rarely used transaction types when importing transaction data. This means that some data may fall through the cracks, leading to customers filing tax returns with critical information missing.
Fourth, after importing, you should absolutely check whether transaction records for newer cryptocurrencies and things like NFTs have been uploaded properly. After all, new cryptocurrencies and related items are emerging all the time, and exchanges, wallets, and crypto tax software need some time to catch up.
Finally, you must check whether you have the ability to delete imported data when you need to. Without properly filtering out these bits of unwanted data, you may end up paying more tax than you actually have to. To increase the accuracy of fee calculation, Cointelli extracts fee values by dissecting the exchange data across key criteria instead of using the data provided by the exchange as it is. Investors with a lot of transactions in particular are advised to pay close attention to the amount they end up paying.
After you’ve confirmed that your crypto tax software of choice can properly import all of your data from across your exchanges and wallets, it’s time to check whether the software lets you review the data and make corrections as needed. We’ll see you in the next article where we cover precisely that!
Cointelli is a crypto tax reporting company founded by Mark Kang, a certified tax professional whose long experience serving his community as a CPA motivated him to develop user-friendly tax software. Cointelli automatically detects and corrects errors during the tax report generation process and is compatible with TurboTax as well as a broad range of crypto exchanges and wallets. In these ways and more, Cointelli brings ease to the tax reporting process.
Check out Cointelli to learn more.