From N., an MR reader:
I own crypto in 3 different centralized exchanges, two hardware wallets, one software wallet (Metamask), have four cryptos staked in multiple different pools and I also have some cryptos I gained by mining them using my GPUs. I have made 600+ transactions between the exchanges, wallets, and staking pools. I hold 75% of my portfolio and trade the rest. So most of these transactions were for trading one coin for another from which I have profited handsomely in the 2021 bull cycle run.
But I am doing my Crypto taxes right now its an unbelievably complicated nightmare. Prior to 2020 I only held a Coinbase account and I downloaded the tax forms or the transaction list as a .csv file from it and submitted them to my tax advisor. But in 2021 I have gone deeper into crypto and I have purchased hardware wallets, held crypto in soft wallets, DeFi platforms like Aave, staked crypto, mined crypto, and traded crypto between exchanges for lower transaction fees, for coins that are available only in certain centralized and decentralized exchanges, etc etc. Many of these types of crypto transactions are taxed differently and are from different institutions.
So it’s impossible for me to do my crypto taxes easily with just a single tax form from Coinbase. I have to link all my exchanges (and expose all my crypto holdings and trades) to a crypto tax website, I have decided to use Koinly.io which charges $99 to do my taxes. I do not have any other realistic choice.
After I linked all 3 centralized exchanges where I hold crypto, the capital gains estimate Koinly.io gave seemed too large. I realized it was because it was counting the crypto I sent from centralized exchanges like Coinbase to my hardware wallets as a “Sell” so it was counting them as capital gains. I have too many transactions of this nature to manually go through them one by one and mark them as “Transfer” i.e. transfer between my own wallets. So if I want the tax software to do it automatically, I have to expose the public keys of my hardware wallets so Koinly can automatically mark them as transfers. (I haven’t done this step yet because I don’t want to expose my hardware wallet public address to anyone or anywhere and I am researching alternate ways to do this.)
But if there isn’t any other way either a) I have to spend hours going through each transaction manually and marking them as “Transfers” or b) expose the public keys of my hardware wallets to Koinly.io.
Also, there is more manual work to be done for categorizing certain transactions as moved to staking pools, marking transactions from my mining pool to exchanges as income, etc.
I know that fiat currency debit and credit card purchases are absolutely not analogous to crypto but that’s the comparison many crypto maximalists make (“take down the traditional financial and banking system!”).
Imagine if TurboTax needs your complete transaction history from your banking institutions and it goes through all credit and debit card transactions to accurately do your taxes. Would anyone accept that?