I've been hearing a lot about cryptocurrency taxation lately, and I'm shocked at how many people continue to face the same problems each year. Things like assuming that swaps are tax-free, disregarding income from staking or airdrops, or believing that "no withdrawal to bank" entails no reporting obligation.
Missing transaction history is another major issue, particularly for DeFi wallets that were used a few years ago. Later on, rebuilding that can be costly and stressful. Confusion regarding capital gains versus income treatment, which can drastically alter the tax amount, has also caught my attention.
I’m not a tax professional, just someone trying to understand the rules better and stay compliant. I’d love to hear from others here:
- What was the most confusing part of crypto taxes for you?
- Did you discover any mistake only after filing or getting a notice?
- Any lessons you wish you knew earlier?
Hopefully this thread helps newcomers avoid some common pitfalls.
As someone who has worked with hundreds of clients and now working as a product lead for the crypto tax software Summ, here is the single biggest misconception/pitfall I see:
“Do I need to load in all my data or just the last tax year?”
While it might be intuitive for accountants, most don’t understand that in order to know which tax lots were sold this year, we need to know the full scope of your transaction history.
Failing to load in ALL your data to your tax software is the #1 reason people get inconsistent/inaccurate results. Simply adding all your data in before you review your data is the easiest way to reduce manual work and ensure accuracy.
From my time helping people DIY their crypto transaction tracking with HODL Totals, it wouldn't be a year without someone coming out of the woodwork who didn't know what they got themselves into before racking up 1000s of confusing trades across many coins. Some of these people cannot even operate a spreadsheet at a fundamental level and this is scary.
It gets hardest when working with privacy coins where there is no block explorer to serve as the single source of truth. The wallet software has to work and some of these projects have poor transaction export support. Ie dates come out garbled, in wrong time zone, weird digits of precision, etc. It's a shame because I think even well intentioned people start to feel the situation is hopeless and just skip the tracking. Which of course means when these coins Moon someday (could happen !) there will be a lot of headaches.
Totally agree and feel this. I am one attempted to use that spreadsheet and am personally decently spreadsheet savvy but upon realizing I had thousands of transactions I decided to use automated software. Even with this software I still ran into a lot of micro transactions I was not sure how do categorize as well as issues arising from different ways of recording entrance and exiting from liquidity positions on different chains. I'm not exactly sure what the solution is but would absolutely vote for some kind of alleviation from the arduous recording of all these micro transactions. I feel like a lot of this is not all that different than if you were to go into an arcade or Casino and use their tokens credit score chips. One does not have to report all of the games they play in prizes they win from an arcade so why do we have to do that with all of these micro transactions and art purchases with cryptocurrency? I mean I understand it's because they want to have a piece of any perceived game in value but honestly that is literally gross. Anyways until the rules changed I do the best I can and use software to calculate my forms and Report everything I do on chain even if I think it's ridiculous. There are some exchanges and some change you still have to either import manually or make manual transactions for on each software I've looked at. None of them seem to handle everything.
At Aurum FSG we see these exact issues every single year, across thousands of wallets and all major countries so you’re definitely not alone.
The biggest pain points we notice:
• People assuming swaps aren’t taxable. Almost every client is surprised that a simple token to token trade counts as a disposal.
• Missing or incomplete DeFi history. Old wallets, abandoned farms, LP positions from 2020–21 rebuilding that years later is usually the most time consuming part of a reconciliation.
• Mixing up income vs. capital gains. Staking/airdrop rewards treated as gains instead of income (or vice-versa) can easily swing someone’s tax bill by thousands.
• No bank withdrawal = no tax. Still one of the most common misconceptions we hear when people come to us for cleanup.