Accountants reveal how you’re doing your crypto taxes wrong

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A new survey found 95% of crypto tax experts believe clients are incorrectly reporting taxes. Here’s what they reckon you’re getting wrong.

Crypto accounting platform Blox.io has taken one of the first truly in-depth looks at the crypto accounting industry.

The survey of US-based crypto tax experts confirmed what most of us already suspect – that we’re almost all getting our crypto taxes wrong.

While the US has different tax laws to Australia, most of the issues identified in the report are similar to those cited by local crypto tax experts Micky has spoken with.

crypto tax
This is where you’re going wrong on your crypto taxes

Just 5% think clients are getting it right

Only 5% of certified practicing accountants who specialise in crypto believed their clients – whether individuals or businesses – are accurately and comprehensively disclosing their transactions and assets to tax authorities.

About 98% believe missing or inaccurate data is the most common crypto accounting mistake – and this can at least be fixed with more due diligence around record keeping.

The reports say that incomplete records put “large holes in the results or ledgers when making calculations – for example when calculating profit and loss. This can have a disastrous effect on reconciliation.”

It can also leave individuals and businesses exposed to fines.

Crypto tax software is the key

89% of those surveyed either weren’t aware of, or hadn’t used, automated crypto accounting software which makes the process much easier.

Shehan Chandrasekera from JAG CPAs said that “trying to account for transactions manually in a spreadsheet without using a coin tracking software” was one of the biggest mistakes her clients made.

Jeremy Nau from Armanino Blockchain agreed that the complexities of reporting were the key issue.

“Accounting for crypto is typically more complicated than most other accounting items I have encountered,” he said.

“Accounting for gas/mining fees, exchange fees, C2C exchange rates, tracking cost basis – especially for interwallet transfers – is not easy to do manually”

Online solutions for Australian residents include Cointracking.info, Independent Reserve’s tax calculator, and Sublime IP’s crypto tax tool.

Sharon Yip – founder of Crypto Tax Advisors

Sharon Yip, founder of Crypto Tax Advisors encouraged investors to make use of these services but to be aware of their limitations.

“Currently, there are over a dozen crypto softwares on the market. Although each software has some unique features or capabilities, there are common issues across the board,” she said.

“For example, none of the software supports all the exchanges and wallets; most software cannot quickly handle tens of thousands of transactions.”

For the sake of accurate record-keeping, it may be worth limiting trades to supported exchanges that allow for .csv exports or the use of APIs.

Clients needed to constantly update their records because if an exchange closes down, it’s very difficult to replicate those records.

“If a business created 1,000 transactions per day, to 100 different wallet addresses, for 30 different departments, organizing and searching for those transactions is a needle in a haystack scenario,” Yip said.

“Relying on exchanges is also a dangerous game. Some only track a few months of transactions, while some shut down completely, leaving investors with no historical records of their transactions. This makes calculating profit and loss almost impossible, and could even lead to legal repercussions.”

Sharon Yip of Crypto Tax Advisors

The major crypto tax issues identified by the experts:

  • Lacking disclosure of assets and transactions for tax reporting, from both businesses and individual clients (95%)
  • Missing or inaccurate data from clients (98%)
  • Miscalculations of capital gains when analyzing transactions using FIFO (First In First Out) or FOFI (First Out First In) methods (92%)
  • Manual tracking of user or business data/account information (87%)

Fortunately, most of the crypto tax experts were optimistic about the future with more than 9 in 10 saying smarter, more automated software would be developed and they expected improved tax regulations and guidance.

More on Australian crypto tax:

STEP BY STEP: How to submit your Australian crypto tax return
ATO answers 10 crypto tax questions that can save you $$$
Australian crypto tax shocker – $100,000 bill on $20,000 worth of coins