Introduction
Cryptocurrency tax software is designed to simplify the reporting process, but many users encounter unexpected errors, incorrect calculations, and missing data. If your tax reports seem off, you’re not alone—these tools are not foolproof.
Crypto tax software like Koinly, CoinTracker, CoinLedger, Bitcoin.Tax, Accointing, Ledgible, ZenLedger, CryptoTaxCalculator, CoinPanda, and TokenTax all aim to automate tax calculations, but each has limitations. Understanding these common issues will help you prepare accurate tax filings and avoid overpaying.
Here are the top five problems with crypto tax software and what you can do to resolve them.
1. Missing Data Sources and Missing Years
Missing Data Sources
One of the most common reasons crypto tax software generates incorrect reports is incomplete data. If you haven’t linked all of your wallets and exchanges, your tax calculations will be inaccurate.
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Issue: Transfers between personal wallets and exchanges are not taxable, but the software must see every movement to classify them correctly.
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Solution: Ensure that you upload a complete transaction history from every wallet and exchange. If the software mislabels transactions, manually review and correct them.
Missing Calculations from Prior Years
If you’ve been trading crypto for several years but only started tax reporting recently, missing past data can cause major issues.
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Issue: The software needs to calculate your cost basis (the original purchase price) to determine gains or losses. Missing cost basis data can lead to an inflated tax bill.
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Solution: Upload all past transaction records before calculating gains. If you’re unsure where to start, a crypto accountant can reconstruct your cost basis.
2. Unsupported Blockchain Networks
The rapid evolution of blockchain technology means that tax software may not support every chain, especially newer or niche protocols.
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Issue: If you trade on a lesser-known blockchain, the software may not recognize those transactions. This can cause missing data and miscalculations.
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Solution: Manually export your transaction history as a CSV file from unsupported platforms and import it into the software. Each tool provides a guide for correct formatting.
3. Spam Airdrops and “Sh*tcoins”
Crypto users frequently receive unsolicited airdrops—some legitimate, some scams. These can create false taxable income in your tax software.
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Issue: Tax software may classify scam airdrops as taxable income, artificially inflating your reported earnings.
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Solution: Manually exclude illegitimate airdrops. If you’ve received thousands of these transactions, a crypto tax professional can bulk-remove them for you.
4. Legal Gray Areas in Crypto Taxation
The IRS has not provided clear guidance on every type of crypto transaction, leaving many activities open to interpretation.
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Issue: Some crypto activities—such as wrapping tokens, liquidity mining, and cross-chain swaps—fall into tax gray areas.
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Solution: Choose a conservative or aggressive tax position based on legal precedent. If in doubt, consult a crypto tax attorney to analyze your specific case.
Special Case: Lost Crypto on Bankrupt Exchanges
If you lost assets on a bankrupt exchange (like FTX), tax software may not automatically account for these losses.
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Solution: Depending on your situation, you may be able to claim a capital loss deduction or classify your losses under theft loss provisions. Consult a tax professional for guidance.
5. Issues with NFTs and DeFi Transactions
NFT Transactions
NFT tax reporting is particularly difficult because:
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NFT values fluctuate widely, making it hard to determine fair market value.
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Some NFT transactions (e.g., minting, swapping) lack clear IRS guidance on how they should be taxed.
DeFi Transactions
Decentralized finance (DeFi) transactions often show up as hundreds of individual transactions in tax software, making them difficult to categorize correctly.
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Issue: Borrowing, lending, staking, and yield farming may be misclassified by tax software.
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Solution: Manually review your DeFi transactions, and if necessary, consult an expert to avoid misreporting taxable events.
Conclusion
Crypto tax software can be a helpful tool, but it is not a substitute for careful review and proper tax planning. The five most common problems—missing data, unsupported chains, spam airdrops, legal uncertainties, and complex NFT/DeFi transactions—can lead to significant errors in your tax return.
If you want accurate crypto tax reporting without the hassle, Block 3 Finance specializes in crypto tax consulting and professional tax preparation. Whether you need help fixing errors in tax software or handling IRS audits, our experts can ensure your crypto taxes are filed correctly and efficiently. Contact Block 3 Finance today for expert assistance.
If you have any questions or require further assistance, our team at Block3 Finance can help you.
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