The Necessity of Crypto Recon Software in Financial and Tax Reporting

1. Introduction

Crypto users and finance individuals like crypto accountants and tax professionals often deal with hundreds or thousands of crypto transactions from different platforms, wallets and exchanges. Unlike fiat transactions, crypto activity often involves a high volume of trades from multiple wallets and exchanges and on-chain transfers. Manually tracking these can get a bit overwhelming given the complexity of most of the transactions. This is where crypto reconciliation software becomes essential for most high-volume or multi-wallet users to effectively and efficiently import, classify and generate financial and tax reports.

2. What do Crypto Recon Softwares do?

Crypto reconciliation software helps to bridge the blockchain/exchange data and the structured accounting records. Core functions of crypto reconciliation software are the following:

1. Data Import: Uses APIs and CSV uploads to import crypto transactions from wallets and exchanges. Some software allows users to manually create transaction data entries.
2. Automatic tagging of transactions: Most crypto recon software suggests categories to transactions as they are imported, saving users time and effort by reducing manual data entry, though classifications still require review to ensure accuracy.
3. Computation of cost basis & gains/losses: Automatically computes cost basis and gains/losses using the methods such as FIFO, LIFO, HIFO, WAC, subject to software capabilities and jurisdictional tax rules.
4. Detection of errors: Errors are detected by the software which might include missing cost basis, duplicate entries, negative balance of an asset and unmatched transfers.
5. Reporting: Generates financial and tax reports that can support audit and compliance processes when properly reviewed and reconciled.

3. Notable Crypto Recon Softwares in the Market - What They Do and their Unique Features

1. Cointracking: Offers more granular control and configurability compared to highly automated platforms.

Unique Features:

• Transactions bulk editing: Enables users and accountants to edit transactions simultaneously, without the hassle of editing them one by one.
• Back-up capability: CoinTracking lets users save and go back to the previous versions, which is very useful against accidental data deletion or corruption. The number of versions depends on the paid subscription plan.

2. Cointracker: Provides user-friendly, automated syncing and seamless integration of tax reports to tax softwares like TurboTax.

Unique Features:

• Tax Loss Harvesting Tool: This helps users identify opportunities to reduce tax liability.
• Strong Portfolio Tracking: Useful tool for investors who want a real-time view of their portfolio to monitor performance and exposure.

3. Koinly: A user-friendly crypto tax and portfolio tracker.

Unique Features:

• Global Tax Compliance: Designed to generate tax reports that comply with over 100 countries and specialized tax reports with over 20 countries.
• Extensive number of Integrations: Supports crypto transactions integration with 800+ wallets and exchanges.
• Integration to Traditional Accounting Softwares: Koinly directly integrates to accounting softwares like Quickbooks and Xero, without the need for a separate crypto subledger.

4. CoinLedger: Focuses on generating tax reports.

Unique Features:

• Integration to Tax Filing Software: Enables users to generate tax reports and then export these to tax filing softwares such as TurboTax, TaxAct, H&R Block, which simplifies U.S. tax filing.
• White Glove Service: Offers a “Done For You” service where a dedicated expert will manage all the work and you will just receive the finalized tax reports.

5. Bitwave: Offers enterprise crypto accounting, reconciliation and reporting

Unique Features:

• Stablecoin payment tool: Supports stablecoin-based vendor payment workflows with accounting integration.
• Integration to Traditional Accounting Softwares: Same with Koinly, Bitwave directly integrates to accounting softwares like Quickbooks, Xero, Sage and Netsuite.

4. Conclusion

When choosing the appropriate crypto recon software to use, it is important to understand what kind of financial and tax reports the individual/business needs. While most of the software share common tools like importing transactions, calculating gains/losses and generating reports, the differences in automation and control determine which software best fits your business needs. Selecting the right software can simplify crypto accounting reconciliation and support accurate financial and tax reporting.