As a crypto investor, accurately reporting your transactions can be challenging.
While crypto tax software can be useful for basic transactions, it may not be accurate for more complex transactions like minting NFTs, yield farming, or using self-custody wallets. This can lead to overpaying on your taxes.
In this article, we will discuss how to amend your tax return in the United States if you think you overpaid, as well as provide tips on how to get your crypto taxes done right.
Why Crypto Investors Usually Overpay On Taxes
Crypto tax software is typically designed to ensure compliance with tax laws rather than tax optimization, which can result in inaccuracies that take satoshis out of your pocket.
Additionally, the fast-paced nature of the crypto and web3 ecosystem makes it difficult for crypto tax software to keep up with changes.
As a result, investors may end up overpaying on their taxes.
What To Do If You Think You Overpaid
If you think you overpaid on your taxes, filing an extension or an amendment could save you money.
Filing an extension can give you more time to gather the necessary information to file an accurate return, while filing an amendment can correct any errors on a previously filed return.
Pros & Cons Of Amending vs. Filing An Extension
Filing an amendment can be beneficial, but it does come with audit risks.
However, if you are entitled to a refund, filing an amendment can result in receiving that refund sooner.
Additionally, a more accurate cost basis can save you money on future returns.
If you have not already filed a return, filing an extension can give you more time to gather the necessary information to file an accurate return.
However, it is important to note that filing an extension does not extend the time to pay any taxes owed.
Whether you file an extension or decide to amend your return, the first step is to get an accurate crypto tax report.
How To Get An Accurate Crypto Tax Report To Save Money
There are several options for getting your crypto taxes done right, including using an accountant, or using a crypto tax software and doing it yourself.
Each option has its benefits and drawbacks, so it's important to evaluate which is best for your specific needs.
Using an accountant has the benefit of getting an informed consultation about the crypto tax laws that apply to your situation, and how to minimize your taxes in a legal way.
A good accountant will generally do what they can to save you money without increasing your risk of an audit.
However, using an accountant does come with its costs, and many accountants do not have the capabilities to properly reconcile some of the more...degenerate transactions you might have done.
Benefits of using crypto tax software
Crypto tax software can save you time and effort by automatically retrieving data from the blockchain, tracking trades, and calculating your tax liability in real-time.
Additionally, using crypto tax software to keep a ledger of transactions can provide a starting point for manual review.
Manual review for accurate tax reporting
While crypto tax software can be a helpful tool, conducting a manual review is crucial to ensure accurate tax reporting.
This can be done independently using a step-by-step guide or by hiring a professional firm like ours at Crypto Tax Made Easy.
Conducting a manual review involves reviewing transaction details, interpreting smart contracts, fixing inaccuracies, and applying the correct labels for compliance with tax laws.
It also involves making sure your crypto balances in the tax software match your on chain balances, a process called "reconciliation".
Integrating your report with tax software or CPA services
Once you finish a manual review, or have a firm like ours do the review for you you can now file your return or file an amendment.
You can send the report to your accountant and they can review it, include it in your tax return, and file the return or amendment on your behalf.
Or, you can use a tax software like TurboTax to upload the report and follow their instructions for filing the late return, or filing an amendment.
Accurately reporting your crypto transactions can be challenging but taking the time to get it right can save you money in the long run.
By using crypto tax software effectively and conducting a manual review for accurate reporting, you can avoid overpaying on your taxes.
We encourage you to take the necessary steps towards mastering crypto taxes by working with a firm like Crypto Tax Made Easy, or requesting our step-by-step guide for setting up crypto tax software and conducting a manual review.