Crypto investing is a new frontier. Like any new frontier, it comes with its fair share of challenges, where simple, unsuspecting mistakes can lead to costly consequences. Every day, inexperienced and unorganized investors lose hundreds and thousands of dollars and get in trouble with the IRS for unintentional, yet common crypto accounting mistakes.
As your crypto CPA, we at Onchain Accounting understand how these mistakes can inflate your burdens and trigger all sorts of issues. We believe that identifying these errors is the effective first step to addressing them. As such, in this post, we will be talking about the most common pitfalls in crypto accounting, how to identify them, and most importantly, how to avoid and remedy them.
What are the most common crypto accounting mistakes?
Missing transaction data
Losing track of your trades and transfers can be quite the hassle. Incomplete records can mess up your accounting, throw off your financial reporting, and land you in hot water with the Inland Revenue Service (IRS). Using automated portfolio trackers, double-checking API connections, and staying up to date on the latest updates and regulatory changes is the best way to avoid missing data on transactions.
Manual data entry errors
Human error can grind entire operations to screeching halts and take a lot of man-hours to unravel. To save the money, time, and resources that would have otherwise been lost due to human error, you can use crypto tax software, standardize processes, and call on experts to closely audit the data, even the data generated from software.
Errors in cost basis calculations
The cost basis, or ‘original price,’ plays a significant role in your crypto tax calculations. Getting the value will most likely result in you receiving an unpleasantly high tax bill from Uncle Sam. Picking the most appropriate cost basis method based on your needs (e.g., FIFO, LIFO, or specific identification) and sticking to it with the help of an experienced cryptocurrency accountant is the best way to avoid potential errors in cost basis calculations.
Multiple wallet problems
It can be difficult to keep track of multiple wallets and can lead to serious headaches if not managed carefully. The trick to handling multiple wallets is to centralize tracking and accounting. With tools like Cryptoworth and Coinbase, you can keep track of all your wallets, understand your holdings, prepare for taxes, and thrive.
Not adhering to tax rules
While we all agree that crypto taxes can be confusing, it’s sadly not something you can ignore. Some of the most common errors when it comes to tax rules are failing to report all taxable events, presenting incorrect values, and overlooking activities such as airdrops and hard forks. To avoid tax-related mistakes, working with a qualified crypto CPA, the use of crypto tax software, and staying up-to-date on the tax laws is a must.
Conclusion
When you look at some of the most common crypto accounting mistakes, they may not seem like huge concerns at first. However, when these mistakes add up, the results can be catastrophic. The good news is that most of these mistakes can be prevented and remedied; all you need is a bit of expert help from a talented cryptocurrency tax professional.
At Onchain Accounting, our team of experts specializes in identifying and correcting crypto accounting errors in personal and business portfolios across wallets, exchanges, and DeFi platforms. We combine the best of human and automated crypto accounting to bring an accurate and complete solution for all your crypto bookkeeping needs.
