9 Common But ‘Painful Mistakes’ Made When Using Crypto Tax Accounting Software…

If you own cryptocurrency or any digital assets, you don’t want to be caught owing taxes. Ignorance won’t be an excuse to escape paying the taxes you owe with interest and possible jail terms.

Many cryptocurrency traders use crypto accounting software to record and file taxes. This trend grew when the IRS said that virtual currencies could be taxed. They are easy to use and friendlier to beginners. Sadly, many users still make mistakes when using them. This article will show some common mistakes when using crypto tax accounting software.

Here’s 9 Common Crypto Tax Accounting Software Mistakes To Avoid Now:

1.)  Not Considering Your Portfolio Before Getting Tax Accounting  Software

There are many great cars out there, but only some fit the needs of someone who earns six figures monthly and has a family of four. Before you choose tax accounting, understand the features. Ensure it meets your daily cryptocurrency investing and activities.

It’s okay to get recommendations from blogs, friends, or social media, but take time to understand the app’s benefits as they relate to your daily activities. Then choose the one that fits your needs. For instance, some software is excellent for reporting crypto losses and gains, while others are great when you have more than one digital asset. Choose carefully.

2.)  Failure To Learn Tax Basics

Many think crypto tax software is all they need to handle their crypto tax, but that’s not true.

Crypto accounting software is a tool. Understanding why and how it works is the best way to get the most out of any instrument. An AR-15 rifle is an excellent tool in a veteran soldier’s hand but not so great in an amateur’s hands.

Try understanding how tax works before using the software. It will save time and prevent common errors in reporting and accounting for your taxes. If unsure, ask your tax accounting officer questions and get the correct answers. You can use reputable websites to learn about important information. For example, many say crypto staking rewards are tax-free, but, in reality, they are taxable.

3.)  Relying On The Crypto Tax Accounting Software For Everything

The truth is trading cryptocurrency can be complicated. Tax is another complicated the average person struggle with. So, it’s common to get overwhelmed when you have to handle both. Even seasoned traders are being careful when certain situations come up. So to avoid troubles, you will need the service of a professional accountant to understand how tax works with areas such as NFT (Nun-fungible token), airdrops, wrapped tokens, staking, casualty losses, liquidity positions, impermanent loss, etc.

4.)  Forgetting Some Part Of Your Trading History

One of the common mistakes in crypto tax accounting software is that some users fail to record all their trading history. It happens when you trade in multiple coins and digital assets, and it’s hard to track it all.

We advise choosing a crypto accounting software that makes it easy to record your trading history. Secondly, trade in an easier way for the software to capture it all. Add the link to all your trading accounts depending on your chosen software.

5.)  Ignoring Tax Optimization Strategies

Some users treat the accounting software like it’s all understanding and a guru. They are not. We recommend having a basic understanding of how tax works in cryptocurrency.

You can use accounting software and still enjoy lower taxes. For instance, holding your investment longer for about 12 months or more before you sell can be used as a tax optimization strategy. These are some practical strategies you understand and apply even when using accounting software.

6.)  Going With The Flow Without Proper Planning

Good investment involves planning. When you see a new investment opportunity, what do you do? Calculate the risk? The returns? What about the tax at the end of the day?

Many crypto accounting software users fail to consider or think about the total amount they will accumulate in terms of tax. Then, they are surprised by the amount of tax and the amount the software changes for all its work.

Be different. Consider the tax and charges you are getting as you continue to trade, so you won’t be too shocked at the end of selling your investment.

7.)  Failing To Seek Help When Things Are Complicated

If you read to this point, we have repeatedly said that trading in cryptocurrency can be complicated. Trusting without effort is fine, but not a good way to go about everything. When you need help with things, talk to the customer care representative of that software. They usually have professionals who are waiting to help. Don’t just wing it or say the software is useless.

8.)  Backup Your Data

Crypto tax accounting can be tedious and costly. Imagine losing some of your data and having to do it again.

Depending on the software, do not just assume your data is well backed up. Confirm it has been saved and nothing is missing.

The software works on a designed system, and it can sometimes fail. That’s why you should be proactive and check regularly.

9.)  Mixing All The Data Up

If you are an active trader, you can get carried away and mix personal crypto transactions with your investment.

It will be easier for your software if you organize them in a way that can be studied separately. It doesn’t mean you should not keep some of your crypto transaction data. It means you should be able to differentiate investment from personal use.

Again, choosing software that fits your needs in terms of business and personal use is imperative. It’s way easier if your software is designed to help.

Author Bio:

Mark Robert Buckingham is a Crypto accountant and founder of Results Tax Accountants. He’s on a mission to help Crypto investors, traders, DeFi participants, miners  and businesses and others with cryptocurrency transactions, eliminate tax and accounting headaches and reduce their total tax burden. His blog at www.ResultsTaxAccountants.com/blog gives free info to help you cut-your-crypto tax.