As the crypto space continues to evolve, strict compliance, correct transaction reconciliation, and accurate reporting are each essential. To streamline the process, crypto tax platforms have entered the market in droves. At the same time, these platforms aren’t without their errors.
What you’ll find in my recent article outlining the advantages of hiring a crypto tax accountant over relying solely on software is that these platforms have limitations. For example, an internal transfer could appear incorrectly as a taxable event, while inaccurate date-time information can result in price inaccuracies. While you can read more in the article, the bottom line is that there’s no substitute for crypto tax expertise.
Despite this, having the best possible crypto tax software for your transaction volume, experience level, and transaction types is key. In turn, I have outlined a range of options below to help with key tracking and filing considerations, such as crypto gains calculations, transaction classifications, and more. From there, you can find a range of common errors and how to avoid them.
Top Recommendation: CoinTracking
Well-equipped for a high volume of 50,000+ transactions, CoinTracking is a feature-packed tax calculator suitable for advanced users seeking full coverage for cryptocurrencies, NFTs, DeFi, and beyond.
Additionally, CoinTracking offers a variety of filters for improved clarity and oversight while supporting a wide range of API keys, an important inclusion to mitigate missing data. Meanwhile, CoinTracking’s versatile tax settings empower users to align their transaction classifications with local tax laws. The FBAR report is also supported as well. Coupled with an intuitive user interface, these features have made CoinTracking the top contender among the countless crypto tax platforms available today.
Runner Up: CryptoTaxCalculator
For slightly less experienced users who still have a firm grasp on cryptocurrency taxation, CryptoTaxCalculator is an excellent choice. With over 800 supported protocols and AI transaction classification recommendations, this platform is built for speed and accuracy. Although the FBAR report is not supported, CryptoTaxCalculator’s broad selection of cost basis accounting methods and global tax settings help ensure compliance while minimizing your tax liability.
Honorable Mention: CoinTracker
Not to be confused with CoinTracking, CoinTracker is a beginner-friendly crypto tax software that helps guide users through in-application warnings and tax report notifications. Although this platform is not advisable for complex transactions, the supported features are an excellent choice for basic use cases. From various cost basis accounting methods including FIFO, HIFO, and LIFO to tax-loss harvesting, CoinTracker is a strategic choice for users in need of simple transaction support for 5,000 or fewer transactions.
Noteworthy Alternative: Coinpanda
With NFT and DeFi tracking capabilities, support for over 800 exchanges and wallets, and detailed capital gains insight, Coinpanda is a noteworthy option within the crypto tax software space. This platform is centered on a three-step tax process with analysis options and support for several complex transaction types to help intermediate users get the most out of the platform. Coinpanda’s flexibility makes it a welcomed choice across borders, including over 65 countries.
Worth Consideration: ZenLedger
For a sleek and versatile crypto tax software option with support for over 400 exchanges, ZenLedger is worth considering. Coupled with a streamlined API and CSV file import process, this platform’s solution recommendations and transaction warnings help expedite the crypto tax process. For intermediate-level users in need of the capacity for a high transaction volume, ZenLedger is a welcomed option.
Common Errors to Avoid with Crypto Tax Software
Given the recent rise of crypto tax platforms like the options above, individuals and businesses are oftentimes drawn in by promises of speed and simplicity. At the same time, even top-rated platforms like CoinTracking depend on competent users to ensure accurate calculations and compliant reports. Let’s take a deep dive into some of the most common errors.
Historical Pricing Inaccuracies
One of the most common challenges with crypto tax software involves inaccurate cost basis calculations. In turn, overestimations and underestimations in taxable gains or losses can result. The root cause is oftentimes a discrepancy with the cryptocurrency’s historical price on the date of the purchase or sale. For example, third-party data providers may use different methods to calculate pricing data. As a result, these calculations can vary, leading to inconsistent data with the blockchain. Cross-checking this information is crucial to ensuring accurate crypto tax returns.
Unsupported Blockchain Protocols
Throughout the blockchain ecosystem, the issuance of new cryptocurrencies is a regular occurrence. As a result, crypto tax platforms face the ongoing challenge of capturing the full breadth of data within each wallet and exchange. For this reason, the cryptocurrency data captured by one platform can differ significantly from another. While many platforms feature automatic alerts for missing data, conducting a manual review to ensure accurate information is key.
Overstated Taxable Income
Even if both wallets are added to your crypto tax software, you may still find that internal transfers are recorded as taxable events. Here, you could wind up overpaying on your return through overstated taxable income. Swaps also have a tendency to appear either twice or for only one side of the swap, further decreasing accuracy.
Omitted Transaction Fees
During swaps and other transactions, fees are oftentimes necessary to facilitate the exchange. These can arise at either a fixed rate or as a percentage of the total transaction cost. After an incomplete data import, however, these fees can be missed. In some cases, your crypto tax software may not offer coverage for the fees of a specific exchange. Likewise, the software may simply lack an automated fee categorization capability. Reviewing and manually inputting missing data is an important step to account for these miscalculations.
Limited Complex Transactions
DeFi protocols, airdrops, staking, and other complex transactions are oftentimes unsupported on basic crypto tax platforms. While platforms like CoinTracking or CryptoTaxCalculator that are built for intermediate and advanced users generally include these capabilities, simplified DIY platforms may leave these transactions unaccounted for. As you’ll read in my recent article, choosing the right crypto tax software for your needs is an essential first step for accurate returns.
Regulatory Update Latency
The people behind your crypto tax software matter. Platforms with limited support networks are oftentimes delayed when it comes to regulatory updates. For example, regulations could outline new tax treatment for a specific cryptocurrency transaction type. If the crypto tax software in question is still using the old methodology, the misclassification could slide beneath the radar and lead to non-compliance. Staying up-to-date with regulations and choosing a platform with a robust support network can help mitigate these issues.
Opting for Professional Support
Although these are some of the most common errors facing crypto tax software today, the list above is a small sample of the possible obstacles and situations. As always, the best way to ensure accuracy, compliance, and optimized returns is through a crypto tax expert. I encourage you to visit my website for a full look at how my borderless crypto tax services can help.
Getting Started While Saving
For years, I have leveraged CoinTracking for my borderless crypto tax services. In turn, my recommendation is rooted in lived expertise with the platform. I encourage anyone serious about compliance and crypto tax savings to sign up today for an additional 10% off using my referral link. Ultimately, my recommendation is rooted in my long-standing belief that CoinTracking is the best crypto tax software available today.