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Top 5 Crypto Tax Mistakes and How You Can Avoid Them

If you trade crypto, avoid the top 5 crypto tax mistakes investors usually make and start your journey the right way.


Trading crypto can be messy, and when it comes to crypto taxes, you can make some mistakes without even noticing or because of the complexity and rapid change of the tax code regarding cryptocurrencies.


Let’s cover the biggest mistakes related to crypto taxes, how to avoid them when filling your crypto taxes, and how CoinTracking can help!


In this article:


The top 5 crypto tax mistakes in 2022


Here are the biggest crypto tax mistakes you can make as an investor or trader:

  1. Not filing taxes appropriately

  2. Not keeping track of your trading history

  3. Not reporting crypto income

  4. Not taking advantage of tax-optimization strategies

  5. No tax planning ahead

Let’s cover each crypto tax mistake in detail and show you how to avoid them.


Mistake 1: Not reporting crypto taxes


Not reporting crypto taxes is the biggest mistake any investor can make. In countries like the US, Germany, or Australia, with advanced tax codes regarding cryptocurrencies, there are clear rules that everyone has to follow.


In most countries, crypto trading is taxable, as well as receiving income from digital assets (e.g., earning).


Depending on the tax deadlines for each country, you need to keep track of your trades in each tax year, calculate your gains/losses, and report your crypto activity by the deadline and with the right tax forms.


What happens when you don’t report your crypto taxes?


You may be audited, get fined, or receive letters with taxes due. The easiest thing to do to avoid making this mistake is to track your trades as you go, use a crypto tax software, or ask for professional tax help.


Mistake 2: Not recording your crypto trading history


Not reporting your crypto trades from the beginning of your journey is one of the biggest crypto tax mistakes you can make.


A couple of years ago, some exchanges made it quite difficult to export trades and keep track of a trading journal. We understand the difficulty in tracking crypto trades.


CoinTracking even made an effort to support imports from exchanges that are no longer active (e.g., MtGox). Fortunately, today, most exchanges offer ways to link to software either by API or CSV and track your trades, costs basis, and gains/losses easily.


Misreporting your crypto trades can lead to fines and other issues with the tax authorities, which can totally be avoided.


Our tip is to keep track, at least monthly, of your crypto operations and focus on a small number of exchanges to simplify crypto tax reporting.


Mistake 3: Ignoring crypto income as a taxable operation


Ignoring to report crypto income is a common crypto tax mistake because there is some confusion around the taxable nature of crypto operations that can lead to receiving income.


For example, some investors have failed to report receiving crypto from airdrops or hard forks because they didn’t ask for them but still received them.


Some countries tax these operations when you receive the income, even if you do not do other operations from that income.


Our tip is to pay attention to any new coins that may hit your wallets from airdrops or hard forks and track their Fair Market Value (in USD or Euros), including those proceeds in your crypto tax reporting.


Mistake 4: Failure to take advantage of crypto tax-optimization strategies


Across countries, there are multiple strategies you can use to lower your tax bill.


In some countries, you can enjoy a reduced tax rate if you hold your crypto in the long-term (for over 12 months) before selling.


At the same time, you can offset some of your gains with losses from other trades with crypto tax loss harvesting. Other operations such as donating digital assets or taking crypto loans can also be advantageous.


Ultimately, there’s always the more drastic decision to move your tax residency to a crypto-tax-free state or country and enjoy even more benefits.


But, for now, try to optimize your taxes by thinking about the strategies you can implement today to reduce your crypto taxes.


Mistake 5: No crypto tax planning


Not taking advantage of tax-optimization strategies falls in place with another top mistake you can make: not planning.


If you do not enter a trade with a concrete goal and know what your selling/buying point is, what you will do across scenarios, and what would be (an estimation) of your taxes for the trade, you can be in a difficult position.


When you don’t plan for taxes, you may need to sell some of your holdings to have enough liquidity to pay taxes. If you plan, you can avoid this by always having liquidity from your investments to cover taxes. Reach out to a crypto tax accountant to help you define a long-term tax strategy.


The solution for crypto tax mistakes: Use crypto tax software in your crypto tax reporting


The best crypto tax software in the market is CoinTracking.


You can import your trades using CSV or API, track your gains/losses, and generate tax reports according to your preferred accounting method.


CoinTracking is your full crypto tax solution for:

Moreover, CoinTracking can easily classify all your earnings from yield farming, liquidity pools, crypto staking, and much more.


If you have any doubts about importing your crypto trades into CoinTracking, check these videos or the FAQs.


Crypto taxes with no errors: CoinTracking Full Service in the US.


CoinTracking also offers a Full Service for US traders. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.


Do you have any crypto tax questions? Check the best guides:

  1. Do you pay taxes on crypto margin trading?

  2. How are rebase token protocols taxed?

  3. Do you pay taxes on fan tokens?

  4. What happens if you don't file your crypto taxes?

  5. Do you pay taxes when trading stablecoins?

  6. How is Yield Farming Taxed?

  7. DeFi Taxes: The Complete Guide.

  8. How to save taxes with a Bitcoin IRA.

  9. Do you pay taxes for receiving Bitcoin tips?

  10. Uniswap Taxes Guide

  11. Is wrapping crypto taxable?

  12. How to calculate taxes with Bitcoin dollar-cost averaging?

  13. Do you pay tax on stolen, hacked, or lost crypto?

  14. FIFO for crypto taxes? Implications of accounting methods.

  15. NFT Taxes: The Complete Guide.

  16. Is Bitcoin taxable? The ultimate guide for 2021 taxes.

  17. Top crypto tax friendly countries.

  18. How to reduce your crypto taxes?

  19. Crypto tax loss harvesting: Here’s what you need to know

Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.