Tracking Your Cryptos For The Tax-Man

I’ve just spend a very frustrating couple of days testing out 5 different crypto portfolio trackers, trying to get my books in order, ready for the tax man. That was after I spent even longer trying to set up a complicated spreadsheet template I’d previously downloaded.

It turns out there are some excellent sites out there that will Sync with your Crypto Wallets and Exchange Accounts, and piece together all the different deposits, withdrawals and transfers.

You basically just connect all your accounts and the web app does the rest.

The catch is, most of the ‘free’ sites that promised to be fine for my needs seemed to reach the limited of the free account just before I got all my accounts & transactions imported. Others looked like they were going to work, but didn’t have one or more of the accounts/wallets I needed.

Either way, I’d spend an hour or two linking accounts & entering & checking data… only to reach a dead-end and be back where I started!

The good news is, I did eventually find one option that worked well for meKoinly.

It handled all my different accounts and imported about 98% of my transactions without any issue. Some of these were going back a few years so that was pretty impressive.

The transactions that didn’t import were easily entered manually, and the app was able to connect them to the related deposits/withdrawals on my other accounts.

The end result is I’ve now got it 100% set up and up to date, and I’m able to view a summary report with all the information I need to complete my (Australian)  tax reporting obligations. If I want to print out a detailed report, I’d need to upgrade but this time around I don’t think I need it… though the tax office might have other ideas when I get around to lodging my return!

The only real negative so far is: it can be a bit slow to update after you make a lot of edits.

I went through earlier to mark a heap of ‘withdrawals’ as business costs, and it took a few hours before my taxation report updated to reflect the changes. Checking around online I found this was a bit of an ongoing issue, but as long as you’re aware of it, and patient, it’s easily managed.  I just made all my required changes and started over in the morning, and all was good!

Create a Free Account on Koinly Here

The link above will get you a $20 discount if you decide to purchase a plan, $49-$99 per year, depending on the number of transactions you’ve made. You can and should test it out for free though as that account should be plenty for most people jut getting started.

 

If I Was Starting Out From Scratch…

Now that’s I’ve got things set up, my goal over the next year will be to streamline it even further… which might give you a few ideas on how you can set this up yourself.

  1. I’d set up Koinly right from the start and added all the Wallets & Exchanges I was using to it as I went. Most of the problems I had involved transactions where there was no ‘purchase cost’… probably because I used an exchange I can’t remember!
  2. If an Exchange won’t Sync with Koinly automatically, I’d look for an alternative. Most do  offer API access, which let’s Koinly read your transaction data automatically, but there were a couple where I had to download and import transactions manually. Plus a couple more where I had to enter each transaction individually. I’ve not emptied those accounts and I won’t be doing that next year!
  3. Minimize the number of wallet addresses. Some wallets and exchanges let you create multiple addresses so you can use them in different places to track different activity… I now think it’s just not worth it when tax time comes, so from here on, one wallet per active currency per exchange/wallet!
  4. Minimize the number of currencies I use. By pure chance, most of my business transactions are in LTC, so it was easy enough to filter those and tag them as income or expenses… going forward I’ll build on that, and try to use the same one or two currencies for day-to-day transactions, and put funds into others only if I plan to hold on to them a while.
  5. Empty & Close Inactive Accounts. Now that I’ve got things up to date, I was surprised a just how many exchange accounts and wallets I’ve set up in the last few years. A lot were required for airdrops and the like, but others were just checking out new sites. Either way, I’ve got about a dozen to clean out before tax time comes around again. I also found a few airdrop-wallets I’d forgotten about. Some of those are now worth a few dollars, so I’ll be going back through my notes to see if there’s any more!
  6. Set Aside Some Profits From Every Sale! In Australia, crypto trading is subject to Capital Gains Tax, so if you buy it, hold it and sell it after the price goes up, you’re obliged to pay tax on it… usually a pretty hefty amount. So from here on, any time I sell some cryptos… Koinly will tell me exactly how much profit I’ve made… and I’ll be putting a portion of that into and interest bearing account…
  7. Park those taxable profits in a TUSD paying account. I’ll be using my BlockFi and/or Wirex account for this, I’ll be taking my profits in Tether… so it’s an easy conversion to track my interest income!

It should go without saying, this is not financial or taxation advice… go see a professional for that. This is simply a few headaches I’d take steps to avoid if I was doing it all over again… and maybe a few shortcuts you can use.

Obviously your tax obligations will vary depending on where you live and how far you’ve gotten with your own crypto accumulation process, but hopefully there’s a few ideas here you can use.

One final point is, please don’t fall into the trap of believing cryptos are anonymous and therefore tax free!

When I logged in to the ATO website to START on my tax return, there was already a message there, telling me they knew I’d been doing things with cryptos… and reminding me to include any income etc.

A bit of a shock, but no surprise really… the blockchain is literally a ledger of every transaction ever made, and governments are masters of mining data… and they love going after the little guy. So if you’re doing much at all with crypto, there’s a really good chance they’ll be able to piece it together and come knocking if you don’t report it.

The best approach is to get something set up NOW to keep track of what you’re doing.

Later on when your income has grown and your tax obligations are mounting, you’ll have extensive records and solid data to take to a tax professional, to see if there’s a better way to manage and minimize your tax obligations.

That’s my plan anyway… for now!

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