Whether you are a crypto trader or investor, you most likely have the task of…
Koinly Crypto Tax Software: Making Crypto Currency Tax Easy
Koinly can significantly reduce the amount of time spent on crypto taxes — but is the Koinly platform right for your crypto tax strategy?
Do you need Koinly crypto tax software? If you’re investing in or trades cryptocurrency, it’s critical that you maintain accurate records in order to remain tax compliant. Creating and filing a tax report can be a complicated and stressful process — but becomes significantly more complex when calculating the tax impact of cryptocurrency transactions or trading.
The Australian Taxation Office pays close attention to cryptocurrency trading and investing in Australia — ATO data collection techniques log more than 600 million transactions annually. The ATO currently implements data-matching practices in order to cross-check income tax obligations, making cryptocurrency tax compliance a serious issue.
Regardless of whether you’ve made losses or gains over the last year, it’s necessary to report your crypto trading or investing activity to the ATO — which means you’ll need to log and report every single crypto transaction you’ve made in the financial year.
The process of collecting transaction information across multiple wallets and trades can quickly become a massive task. Fortunately, a variety of cryptocurrency accounting applications make it possible for crypto investors and traders to automate the reporting process, such as Koinly.
Koinly promises to perform the heavy lifting involved in crypto tax reporting, minimizing the likelihood of accounting errors and automatically generating reports. Is Koinly right for your accounting needs, though?
What is Koinly?
Koinly is one of the biggest and most widely-used crypto tax accounting platforms online. The Koinly platform allows users to monitor all cryptocurrency transactions and activity, automatically collecting and classifying data as well as generating regulatory compliant tax reports.
Founded in 2018, Koinly is based in Palo Alto, California, but provides country-specific functionality for Australian crypto traders and investors.
It’s possible to connect Koinly to a wide array of different cryptocurrency wallets and exchanges in order to keep track of crypto-related activities that may have a tax impact, such as mining, trading, staking, lending, DeFi applications, and airdrops.
What Does Koinly Do?
The core purpose of Koinly is to simplify crypto taxes. One of the most attractive features of Koinly is the ability to automatically draw transaction data from the most commonly-used crypto exchanges. Koinly monitors data points such as wallet transfers and market prices, keeping track of gains and losses of users in order to streamline the tax reporting process.
Koinly Features & Integrations
Koinly is designed to directly integrate with over 6,000 different blockchains, delivering native support that includes automatic transaction imports for major cryptos such as Bitcoin, Ethereum, and Litecoin. It’s possible to connect Koinly to hardware wallets such as Ledger or Trezor devices, as well as software-based crypto wallets.
Koinly integrates with over 350 different crypto exchanges such as Kraken, Coinbase, and Binance, as well as Australian based exchanges such as SwyftX and Coinjar. Importantly, the Koinly software suite also connects to 75 wallet applications and portfolio apps such as Delta and Blockfolio.
The primary draw of Koinly is the ability to pull transaction and trade data via exchange APIs, as well as manual CSV file imports.
Is Koinly Safe?
The fast and immutable nature of cryptocurrency transactions means it’s critical to remain wary of any platform or service that interacts with cryptocurrency wallets. While Koinly is able to pull transaction information through API access to exchanges, the Koinly software itself doesn’t require private keys in order to audit tax-relevant crypto data.
Koinly interacts with wallets and exchanges through read-only API access, which ensures user crypto remains secure.
Koinly operates on a freemium model that, depending on user needs, can rapidly become frustrating. The free service offered by Koinly allows users to track up to 10,000 crypto transactions across an unlimited number of exchange accounts, with features such as portfolio tracking, capital gains previews, and specific functionality for DeFi and margin trading.
Koinly only becomes effective in crypto tax management, however, as a paid service. Koinly’s “Newbie” plan — priced at $49 per tax year — offers basic crypto tax trading features that include the free account functionality alongside automatically generated tax reporting, exports to tax software, and error reconciliation tools such as cost analysis.
High-volume traders and cryptocurrency investors with more complex tax reporting requirements may find that the higher tiers offered by Koinly, such as the $179 “Trader” plan, don’t deliver the same cost efficiency as working with a dedicated cryptocurrency tax accountant.
Is Koinly Right for Your Crypto Accounting?
Koinly functions as an effective tool for cryptocurrency investors that want to minimize the overall time cost of managing their tax reporting — but the Koinly platform isn’t ideal for crypto traders or investors that are forced to navigate more complex tax obligations.
While Koinly delivers suitable functionality for individuals that may invest in cryptocurrency with the goal of long-term holding, the Koinly platform is in many ways insufficient when working with complex structures such as crypto trading businesses or trusts.
High-frequency traders and investors or individuals with complex tax reporting requirements may find that the automated data collection features offered through Koinly through the free account tier are best used in tandem with a dedicated expert cryptocurrency tax accountant in order to create the most efficient tax strategies.
Koinly is a powerful and safe cryptocurrency tax reporting platform that is ideal for retail investors with minimal tax reporting requirements. The user interface and functionality offered by Koinly simplifies the tax reporting process but may fall short of the requirements of professional traders or crypto-related business entities.
If you’re currently using Koinly and are unsure of whether it’s the best option for your crypto tax, reach out to Fullstack for professional guidance today.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, agencies and entrepreneurs.