TurboTax recently rolled out features for directly linking crypto exchange accounts into their software. This is misleading for several reasons.
Limitations of This Import Process
If you select to import cryptocurrency investments on TurboTax you will initially see this screen, which makes it appear like you can directly import your full transaction history from major crypto exchanges.
However, using this option will only import limited data from each exchange in a similar format to the 1099-B. In most cases this is not the most accurate way that cryptocurrency transactions should be reported.
Limitations of the 1099-B and Other Gain/Loss Reports Exported by Exchanges
Many cryptocurrency exchanges provide gain/loss reports or 1099-B reports in order to help their customers file taxes. For example, the 1099-B is a tax form for reporting proceeds from broker transactions. It is mandatory for stockbrokers to issue 1099-B forms to their customers in order to report cost basis, proceeds and gains/losses from trading on their platform.
Although it might seem easy and convenient, these reports are not the best solutions for most cryptocurrency investors. This is because trading crypto is fundamentally different from trading stocks and securities.
For example, if you buy some BTC on Cash App and then transfer it to BlockFi and trade that BTC on BlockFi, you will receive two 1099-B forms from each exchange. However, BlockFi has no way of tracking your cost basis, the amount that you originally paid for the BTC on Cash App. Therefore the 1099-B that BlockFi issues will be incomplete.
An Example of TurboTax Inaccurately Importing Transactions
Here's an example of a direct import from Coinbase Pro into TurboTax without using crypto tax software:
This transaction was automatically imported as a sale. It's at the end of a long list of transactions and easy to miss.
Here is how that same transaction is imported into CoinLedger:
This example transaction is actually a non-taxable transfer out of Coinbase Pro, and yet TurboTax imports this as a sale, without warning the customer about this at all.
If you have used multiple exchanges and transferred your crypto around different platforms and wallets, then directly importing like this into TurboTax is not a wise decision. What works with traditional stocks and securities simply does not apply to the transferable nature of crypto.
CoinLedger provides software that truly integrates all your transaction data into a global wallet. After importing for all years and all exchanges, our software orders each transaction by timestamp and tracks the historical price for each buy, sell, and trade. This allows our software to generate gains/losses from a complete picture of your crypto transaction history, no matter where you traded the asset.
What's more, we've built in warnings to flag incomplete data. If our software detects missing cost basis, you will see the transaction flagged with a Missing Cost Basis warning in Step 3. Review and you will also see it listed under the Reconciliation tab in Step 4. Report stage.
There's a reason why TurboTax already integrates with the CSV files that we provide - it works for thousands of our customers. To import your complete tax report from CoinLedger into TurboTax follow this guide.
We've published a lot of content that explains why exchanges are not able to provide complete tax reports. To learn more check out our article in CoinDesk, Form 1099-B is Not the Solution to your Cryptocurrency Tax Problems as well as this blog on our website. If you have any more questions feel free to reach out to our Customer Support team at any time.