Are you getting error messages in your cryptocurrency tax software? Do the numbers seem way off? Don’t give up hope! Here are some potential reasons why you’re not getting the expected results.
Contact the crypto tax professionals at Gordon Law Group for help preparing your tax return.
Gordon Law Group is a cryptocurrency tax law firm that prepares 100s of crypto tax reports each year. We’ve seen just about every error there is on a variety of crypto tax software tools!
We’re familiar with all the most popular software options: Koinly, CoinTracker, Bitcoin.Tax, CoinLedger, Ledgible, Accointing, ZenLedger, CryptoTaxCalculator, CoinPanda, TokenTax, and more.
This information is intended for general informational and educational purposes only and is not intended to provide legal or tax advice.
1. Missing Data Sources and Missing Years
Missing Data Sources:
This is hands down the most common error we see.If you haven’t linked all of your wallets and exchanges, your numbers will likely not be correct.
Transferring crypto between your own wallets and exchanges is not taxable, but the software needs to see every movement of your tokens in order to correctly classify self-transfers.
Even if you have added all your data sources, you may run into issues where the software incorrectly labels taxable vs. non-taxable transactions. In this case, the transactions will need to be manually reviewed.
Missing Calculations from Prior Years:
Similarly, if you’ve been interacting with crypto for multiple years but this is your first time reporting, you need to start at the beginning. It’s critical to have your cost basis for each taxable event; this is what determines whether you had a gain or a loss.
This is only possible if you’ve uploaded all your data and calculated your gains from the first year you started using crypto.
If you’re having trouble with your crypto tax software, then you probably already know how time consuming it can be to report just one year, let alone several.
The experienced crypto attorneys and accountants at Gordon Law Group can help! Contact us below.
2. Unsupported Chains
Crypto moves at lightning speed, with new blockchain protocols being constantly developed.
It’s difficult for every tax software to support every new chain that pops up—especially if you’re using niche protocols. Often, you can solve this problem by manually uploading transactions with a CSV file.
Correct data formatting can be challenging, although the software should provide you a guide or template.
Getting CSV data ready to import into the software is one of the most time-consuming steps for our team of experienced tax attorneys and accountants.
It’s important to complete this step in the beginning and add every data source before you start calculating gains!
3. Spam Airdrops/”Sh*tcoins”
Anyone can airdrop a token into your wallet. Legitimate airdrops are taxed as ordinary income based on the value at time of receipt, but not all of them are legitimate.
Many airdrops are simply spam or even worse, a phishing attempt (these are known as “honeypot airdrops”).
However, crypto tax software can’t always tell which airdrops should be ignored. In this case, you may see impossibly high income on your report.
You should be able to manually ignore transactions, but that can be a headache if you have thousands of honeypot airdrops to ignore. Our team can help!
4. Legal Gray Areas
Although the IRS has issued a small amount of guidance on cryptocurrency taxation, there are still many unanswered questions.
For many types of transactions (such as wrapping tokens), there are multiple tax positions you could take depending on whether you want to be more careful or more aggressive.
You may even have a very specific problem, such as crypto lost on a bankrupt exchange.
Sometimes, the crypto tax software will let you choose which position to take. But in other cases, it’s just too murky and you need an individual legal analysis of your transactions. That’s where an experienced crypto tax attorney comes in!
5. NFTs and DeFi
Transactions involving NFTs and DeFi can be incredibly complex and difficult for software to classify. For example, one DeFi transaction could show up in the software as 100+ transactions.
Certain softwares are better than others when it comes to handling NFTs and DeFi, but correctly classifying all of these transactions automatically is an industry-wide problem. Fixing these errors often requires manual review or even legal analysis.
For more help with NFT taxes, check out our complete NFT Tax Guide!
Resolving crypto tax software errors can take time and patience, but Gordon Law Group can help!
We’ve been doing crypto taxes since 2014 and have prepared countless crypto tax reports, so our team has truly mastered the process. Save time and get an accurate report with the help of our trusted professionals.
We can prepare as much or as little of your tax return as you need: crypto only, non-crypto only, or the whole thing from start to finish. Contact us to get started!