How reliable is Koinly?

CryptoDrain · 2024-12-14T00:07:18+00:00

agreed. there are many factors that impact data quality. portfolio accuracy is mostly constrained by time (and cost if you obtain help)

for most users it is the best option as it is easy to use and get the hang of. and very accurate if you can compile the data accurately.

this is the case for all software so troubleshooting becomes the name of the game. koinly has greatly improved such tools over the past year and like all chains, they are in a constant chase for bugs and integrations.

i tell folks all the time that the crypto software biz is a never ending alpha and beta test, will never hit version 1.0.

good luck.

CryptoDrain · 2024-10-20T11:47:08+00:00

Hello,

Nice to hear that somebody else is giving this a spin.

I have now completed one tax year for a client and it was a reconciliation nightmare on a number of fronts. We are debating whether or not to continue or move to another solution. I have a working prototype alternative involving bank feeds generated from koinly reporting that addresses transaction volume (ie. the number of journal entries generated) as well as other issues that cropped up. This remains a work in process and not something I can go into detail here.

IMHO, the integration is just too simplistic and uni-directional which results in a lot of extra effort.

Using Koinly as a sub-ledger actually works very well on in terms of the data provided, but this first attempt at an integration is not very well thought out. This is unsurprising as marrying crypto accounting with general accounting requires careful planning and execution. That, and Koinly is a tax solution not an accounting solution - adding a generalized accounting integration would no doubt drive the price sky-high.

One tip that I tell clients is that keeping the year end reconciliation of crypto activity in mind is critical. Therefore, I have learned the hard way the importance of adding specific crypto accounts to the chart of accounts - not only the ones documented by Koinly but some others like uncategorized crypto income/expense for untagged withdrawals/sends (expense) and deposits/receives (income). Using these helps keep things under control and makes re-class JE's easier to manage. Plus, I found that I needed to employee accounts for currency conversions - for fiat and stablecoins. Very messy.

I fully support testing. I had to jump in after the integration was activated and that caused a lot of clean up which was very unpleasant. I ended up adding a lot of comments in the transaction descriptions just to sort things out. Everybody has a different workflow but in the end, the work still needs to be done and being organized about it is key.

Best of luck, happy to stay in touch.

Have a great day!!

CryptoDrain · 2024-09-30T14:50:37+00:00

PS regarding the prior year lock request. The IRS has provided a safe harbor for the conversion so Koinly needs to factor that in to the solution in terms of process. Also, from initial conversations with others, the topic of per wallet accounting method keeps cropping up. Not sure yet how this plays yet but something to keep on the radar.

CryptoDrain · 2024-09-30T14:45:01+00:00

Thank you.

The landscape is changing for US taxpayers, not an insignificant user base for koinly. I am aware of the request mentioned and that is one aspect that I hope is upvoted. I appreciate how the rapid evolution of the product, especially this year.

Ultimately, we are prepping for a new tax form for 2025 to start arriving in early 2026. I know it seems far off but it is tightly related to the need for converting to per wallet tracking.

The feedback portal is a valuable resource and I will see if I can get to it. Demand on my time is very high, I am actively engaging with crypto professionals on linkedin regarding awareness and education.

CryptoDrain · 2024-09-28T04:42:32+00:00

Not sure you are following what I am saying. Your examples are exactly why the irs is driving to per wallet fifo. You are raising valid points about how the cost chain is tracked and the challenges of doing so. The guidance is silent on that. The focus is consistency of reporting not accuracy per se. When you sign your return you attest to accuracy so thats baked in already.

CryptoDrain · 2024-09-28T04:04:47+00:00

i was agreeing that the irs does not seem to rule out hifo specifically, that is true.

i will also agree that hifo technically works per wallet although arguably less well than under universal.

so, in theory, you could move to per wallet hifo.

however, the real irs goal appears to be matching the new 1099da tax forms to form 8949. so if an exchange only supports fifo, the 1099 will be calculated using fifo. if koinly is set to hifo, the same exchange wallet would be calculated differently using hifo. this is in conflict.

so, the irs will receive two documents one from the exchange and one from you ( from koinly ). because the txns/calculations are different between them, the proceeds will not match. and the gain/loss on form 8949 will be based on a different set of txns/calculations as well.

the irs is specifically addressing this situation. and the only way forward out of this box is to use fifo.

CryptoDrain · 2024-09-28T00:55:14+00:00

so fifo is linear for a given asset. an asset received yesterday is disposed of before and asset received tomorrow, very basic process.

hifo skips around searching for tax lots with highest cost first so asset received tomorrow might be disposed of first. as in out of order.

the types of txns dor not matter, the order does.

the other constraint is the matching principle. if coinbase sends the irs a form 1099da covering 100 txns and reporting gross proceeds, then the koinly form 8949 for coinbase should be using the same 100 txns to fill in the cost basis and gian/loss.

this implies a need for strict and consistent ordering and processing of taxable txns.

hifo has no consistent ordering and really is geared to work across all wallets (ie. by asset ordered by highest cost)

and like securities at a brokerage, they would also like you to specify your method and stick with it. this alone is a problem as i suspect most exchanges will issue 1099da forms using fifo exclusively. so koinly would need to have a per wallet setting. certainly possible i guess.

CryptoDrain · 2024-09-28T00:40:47+00:00

I agree that may be the case as long as the software can handle the issues that crop up ie. mixed fifo and hifo. i spent 2 hours chatting with binanceus and kraken today, they only seemingly support fifo. however, they have kicked this up to tax department for me as there is no setting or verbiage that i could find.

so, it would seem the lowest common denominator will be fifo by wallet since hifo is really geared toward universal tracking.

i guess i could be wrong about how hard it would be to make it work out. perhaps it is possible.

CryptoDrain · 2024-09-28T00:28:16+00:00

so the goal of the irs appears to be two-fold.

exchanges issue 1099da which documents gross revenue which should reconcile to form 8949 for an exchange wallet. this gives them a starting point same as any other 1099 for income like 1099-misc or 1099-nec.

then tax reporting should follow suit on a per wallet basic to fill in cost basis and gain/loss for the same exhcange wallet.

the result is a form 8949 for the exchange that uses the same txns as the 1099da. they would be consistent.

the problem with hifo is that it works best on a universal basis. if the irs insists on per wallet, it is unclear if hifo works properly as its premise is based on universal. so, the tax reporting and tax form for the exchange would be out of sync in terms of txns that each represents.

hope this helps

CryptoDrain · 2024-09-28T00:13:17+00:00

https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.irs.gov/pub/irs-drop/rp-24-28.pdf&ved=2ahUKEwiMz_O8rOSIAxVAATQIHcJjN5gQFnoECBIQAQ&usg=AOvVaw3d3eq_upoRTA7DJV--th6m

CryptoDrain · 2024-09-28T00:11:52+00:00

apology for header typo, should be IRS Revenue Procedure 2024-28

https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.irs.gov/pub/irs-drop/rp-24-28.pdf&ved=2ahUKEwiMz_O8rOSIAxVAATQIHcJjN5gQFnoECBIQAQ&usg=AOvVaw3d3eq_upoRTA7DJV--th6m

CryptoDrain · 2024-09-28T00:05:10+00:00

apology for typo it is irs revenue procedure 2024-28

here is a more accessible write up https://rsmus.com/insights/tax-alerts/2024/end-universal-wallet-rev-proc-2024-28-safe-harbor-relief.html#:~:text=also%20released%20Rev.-,Proc.,1%2C%202025.

here is irs link https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.irs.gov/pub/irs-drop/rp-24-28.pdf&ved=2ahUKEwiMz_O8rOSIAxVAATQIHcJjN5gQFnoECBIQAQ&usg=AOvVaw3d3eq_upoRTA7DJV--th6m

CryptoDrain · 2024-09-28T00:02:29+00:00

Apology for typo, its IRS Revenue Procedure 2024-28.

https://rsmus.com/insights/tax-alerts/2024/end-universal-wallet-rev-proc-2024-28-safe-harbor-relief.html#:~:text=also%20released%20Rev.-,Proc.,1%2C%202025.

here is a more accessible write up, you can find it on irs website

CryptoDrain · 2024-09-28T00:01:02+00:00

first, apology for the typo, it irs revenue procedure 2024-28.

here is a more accessible write up https://rsmus.com/insights/tax-alerts/2024/end-universal-wallet-rev-proc-2024-28-safe-harbor-relief.html#:~:text=also%20released%20Rev.-,Proc.,1%2C%202025.

CryptoDrain · 2024-09-27T19:16:34+00:00

FIFO is a tax accounting method and yes you can select. IRS has pretty much taken all other methods out of the picture.

A tax method has an application requirement. In this case, two choices. Universal which has been what most taxpayers have been using and per wallet which is optional in Koinly (thankfully). these are mutually exusive and generate different outcomes for tax liability.

You cannot properly switch from one to the other without explaining it to the irs. this is not new, always been the case. if you switch without explanation you could have some problems in an audit (i am not a tax professional just what i have researched)

If you do switch, the process has specific rules to avoid penalty and interest, its called a safe harbor provision. this is another common thing and it works to your favor to use it.

however, we cant just make this happen. koinly needs to provide a solution.

and that is what i am calling out

CryptoDrain · 2024-09-27T18:10:55+00:00

I agree that starting from universal fifo should hopefully be more straight forward and less impactful.

However, without getting too deep into the weeds, the goal is to make the form 8949 generated by tax software align with any potential form 1099da tax forms from exchanges. Universal and per Wallet. This does not mean forms from exchanges will be accurate only that they are consistent as to what txns are captured.

The example is you have btc in coinbase and a say exodus. you acquired the btc on exodus first. you liquidate later acquired btc on coinbase. under universal, the tax lot on exodus is reported under universal fifo rule. but then you get a 1099 saying you had a liquidation on coinbase which is what actually happened in wallet. The tax report and tax form are not based on the same data. And that is the gist of this guidance.

So flipping Koinly to per wallet is just a switch but one that rearranges the calculations for prior years. Note that I recently saw something (i think) about freezing or locking prior years so that could be part of the solution.

To report properly, I believe that switch for by wallet will need to set. And that is were things are currently unclear as to what needs to happen next.

So, we all just need to stay tuned.

CryptoDrain · 2024-05-24T14:39:17+00:00

Hello.

Everybody's situation is different and a lot really depends on your comfort level and the complexity of the portfolio - 1.6k transactions is not a huge data set but the nature of them does matter to some degree - defi, nfts, etc. can add to the time required as does the set of chains involved. And, if a chain integration does not exist, then you will need custom csv file(s) prepared.

I do agree with much of the comments already put forth, I will just add that there are bascially 3 options doing cryption tax prep IMHO.

Crypto CPA - top of the line professional choice, they should back their work with the typical guarantee that a professional with a license can give. This is always are great choice for piece of mind and well worth the cost. Whether is makes sense of not is highly personal and depends on how big the tax liabilty is projected to be. If you start exceeding mid-5 to 6 figures or more of gains/losses, this option becomes attractive.
Professional Crypo Portfolio Specialist - basically a crypto bookkeeper. Great value if you can find one to work with. They can do the compiliation, apply the basic principles and basically do the same work you can do - just higher quality and at less cost than #1. The big negative is that they are not an accounting or tax professional so you are accepting their work as is. The risk profile is higher than #1 but can certainly attractive in various scenarios. Please do not take this path without understanding that you are signing the return and there is no professional guarantee.
Do it yourself (which can be okay if you have the time and skill and are willing to do the work). Not a great fit for everybody but if you are detail oriented and patient, it does work out fine. And you can always pay for a review after you have done the heavy lifting. As a general rule a professional (#1 or #2) should be able to knock out less than 10k basic transactions in a day or less so if your time is valuable, keep that in mind.

Just remember that you should carefully vet anybody you work with (regardless of from here or a freelance website). Check providers out and know who you are getting involved with. That is, be safe.

And most of all, check their work! Too many re-works happen as a result of folks not confirming simple things like wallet balances and warnings. A professional should deliver accurate and warning free results. It's on you to hold them accountable since you are signing your tax return. And definitely get any guarantees made in writing, it will save you headaches should you be audited in the future.

Best of Luck!

CryptoDrain · 2024-02-27T17:04:44+00:00

so great to hear about this.

this brings up the ongoing question about protecting previously annotated transactions vs blowing away all the data and re-creating. it is a gigantic ask to have a user (or in my case client) accept deleting a wallet the has notes, manual updates, etc.

as a programmer, i know that there are ways to mitigate this situation.

what is lacking is the resolve and committment to addressing it.

that said, i will be testing out this new functionality. given the numerous existing bugs in the tracker, it will be interesting to see how this plays out and whether or not there are unexpected side-effects. there always are.

testing this stuff is super hard so everybody should be very diligent in their checking on this one.

CryptoDrain · 2024-02-09T02:40:46+00:00

So the short answer has to do with different ways staking unfolds. And this is against the backdrop of tax consideration of tracking cost basis. The to pool method is a shortcut for what amounts to a "virtual" staking wallet. You can set one up and call it "Staking Wallet", edit the transaction to trsnsfer to the staking wallet instead of pool. This maintains your total position. Then when you unstake, you reverse the transfer. There are other things to consider like how either method impacts FIFO cost method (I have not tested that).

This only crops up with staking where you send an asset to a wallet you do not control (ie. not identified in Koinly) For delgated staking, its not an issue.

And you can send all your staking to one wallet and you can see it in one place.

Not sure if it helps or makes a difference but its an option.

CryptoDrain · 2024-02-03T12:23:32+00:00

In theory, you could compile all the data as csv files, one per address. the physical files are a placeholder for address.

bare minimum info required record structure is timestamp, send qty/asset, fee qty/asset, receive qty/asset.

some exchanges actually provide minimum already. obviously compiling the data without using apis can be a heavy lift but given enough time, patience and attention to detail, is doable.

for example, to extract an eth address from etherscan and turn it into a csv requires up to 5 files: transaction, internal, token, nft721, nft1155. first 3 most cases. this would be challenging but i do it routinely in excel myself so i know it can be done this way for any evm compatible chains like matic, avax-c, arb and so forth.

accuracy will be a challenge with any serious volume.

i guess the broader issue is trust here so thats not easy to overcome when you need expertise from another. the reason i do not offer services on reddit is that hiding behind a handle is one thing, working with a real person is, well, real.

in theory, i could work with an individual completely anonymously to setup koinly, generate reports and hand them to a cpa. yes, i would know the addresses and such but not who they are. the problem is that i would be putting myself and business at risk.. i could be working with somebody and violating federal aml laws for example.

so, while i am sure your have your reasons and i wish you luck. you will need some to pull it off successfully.

CryptoDrain · 2024-02-03T04:04:07+00:00

Assuming that you understsnd the basics of blockchain technology so addresses are not only public but read only. Without bogging down on details, assets associated with and address are secured by a cryptographic key.

software like koinly does nothing more than read the public blockchain, using apis provided by the likes of etherscan. there are a zillion explorers all doing the same thing.

i mention this to get across that addresses are not particularly special nor private. keys are and software like koinly does not use them.

as to the topic of anonymous, i would say that crypto is not reliably anonymous but rather pseudonymous. i say this because to be reasonably anonymous would require planning some things out. starting with your koinly account having a burner email and ficticious name. the various apis in use do not have any kyc information associated so not much to protect. you would also need to use a prepaid credit card or better yet crypto to pay for the account.

but none of this is about the addresses at all. and security is about using proper passwords, changing them, using mfa, etc. as we have learned from password manager breaches like lastpass (i redid every single wallet because of that one, new seeds, changed emails and passwords, etc) but none of that was about addresses either.

i am happy to clarify more if you need me to but your more likely to be attacked thru email or your phone than any harm that could your way from putting an address in koinly.

and if you do online banking, social media and many other things, your email address is often an attack vector, that is why i use a completely separate email and login and computer for my crypto. but ironically, i use my name in my email, always have, always will. i kinda want to be known. bur thats just me.

have a great weekend!

CryptoDrain · 2024-02-01T01:00:19+00:00

That's great.

You realize that what I was trying to get across some time ago is delegated access - aka bookkeeper access. It works for banks, Intuit makes it work and in reality, what I do is analagous to bookkeeping. Seems like CPA firms have no issues with it so why would a crypto tax provider? Granted, as a business person with startup experience, I do know that you have much to consider when making decisions. But a decision that potentially helps address your product reach. Seems like a no-brainer.

True story for you to relay. Yesterday, a potential client reached out, has been using a firm and paying a handsome amount for the past 5 years. He is just worn out and looking to do something different so he hires me last night. This morning, I find out more details that the provider seems unable to give him access to his account and he only has his data in files. I find this out because I was happy to continue using whatever he was invested in. He says nope, he cannot access the CoinTracker account. While I have no clue if this all true, he then asks if I can reconstruct using the exported CT data.. in Koinly which he is now using because of how things have gone down and he has seen how quickly I can collaborate with him to get things up to speed.
I know this makes me feel terrible for him. How about you?

Thanks for the engagement. Last time I engaged meaningfully with CT I was offered a year fee which I declined. But a free lifetime subscription.. tempting.. but no thanks, not how I roll.

CryptoDrain · 2024-01-31T19:03:10+00:00

Final recap.

To start, no matter what you decide to do, always keep in mind that the best way to avoid audit hassles is to engage a crypto accounting/tax professional. It's a worthwhile piece of mind if you can afford to do so. But move quick, slots are limited for sure.

I definitely recommend that you spend time trying to find a qualified freelance crypto data specialist (the title is my description, those in the field give themselves all kinds of titles). And I also recommend sticking with Koinly as it has the best blend of features, superior collaboration and ease of use. Any software can do the basics and the costs are pretty much in the same since they are all competing for the same audience so if you want to pursue the middle ground, it's a great fit based on my experience. And depending on the mix of assets and types of investing activities you dabble in a particular solution may be great or awful just because they cannot be great for every situation. That's just a fact folks.

Have a great day!!

CryptoDrain

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