Crypto Tax Advisor for Bitcoin, Ethereum, NFTs & DeFi

1. A tax report is not yet a reviewed tax return

Crypto tax tools such as CoinTracking, Blockpit or Koinly are valuable aids. They import transactions, assign them to certain categories and calculate gains and losses.

However, a tool does not automatically know the economic background of a transaction.

An outflow from a wallet can, for example, be:

• a sale,
• a transfer to one of your own wallets,
• a bridge to another network,
• a deposit into a liquidity pool,
• a payment,
• a transfer as collateral,
• a lost holding
• or an interaction with a smart contract.

If a transfer between your own wallets is mistakenly treated as a sale, a gain may be reported that never arose economically. If the original acquisition costs of a holding are missing, the later capital gain can turn out far too high.

Even a report that looks complete can therefore be wrong. What matters is not only whether all transactions have been imported. The entire history has to fit together logically, technically and for tax purposes.

A tax advisor for cryptocurrencies therefore does not simply adopt the result produced by software. They check whether the data basis is complete, whether transactions have been classified correctly and whether the calculation can be explained traceably to the tax office.

2. How a crypto tax advisor checks the data basis

Capturing all exchange accounts and your own wallets completely

It all starts with a complete inventory.

This includes not only the exchanges and wallets currently in use. Closed accounts, old hardware wallets, earlier smartphone wallets and wallet addresses that are no longer used can also be relevant for the acquisition history of coins sold later.

A specialist crypto tax advisor therefore clarifies, among other things:

• Which exchanges and brokers were used?
• Which wallets and wallet addresses belong to the client?
• Which networks were transactions carried out on?
• Which DeFi protocols were used?
• Are exchange exports and API data complete?
• Are there transactions from earlier tax years?
• Were coins transferred off-exchange or directly between individuals?
• Do tax reports or earlier calculations already exist?

A single missing data source can mean that acquisition costs can no longer be allocated or that your own transfers are classified incorrectly.

Reconciling your own transfers and balances

Transfers between your own wallets do not automatically trigger an economic sale. In tax tools, however, they often initially appear as separate transactions: as an outflow on one side and an inflow on the other.

If these two sides are not linked correctly, artificial gains, losses or missing acquisition costs can arise.

We therefore check, among other things:

• Do the outflow and inflow match in time?
• Do the coin amount and fees match?
• Are these really two wallets of your own?
• Were the original acquisition data carried over?
• Is a bridge or a change of network involved?
• Do the calculated closing balances match the actual balances?

Reconciling balances is one of the most important plausibility tests when preparing crypto transactions. If the calculated balances do not match the actual wallet and exchange balances, the calculation of gains is usually not yet robust either.

Classifying technical transactions for tax purposes

Blockchains store technical transactions. The tax return, on the other hand, requires an economic and tax classification.

This translation is particularly demanding with DeFi. A single smart contract interaction can generate several token movements, even though economically there is only one connected transaction.

Typical examples are:

• swaps via decentralised exchanges,
• bridges between different networks,
• wrapped tokens,
• deposits into liquidity pools,
• receipt and return of LP tokens,
• staking and restaking,
• lending protocols,
• liquidations,
• yield farming rewards,
• airdrops,
• NFT minting
• and fees in different tokens.

The software used may recognise each individual transaction. But it does not always reliably recognise which transactions belong together and how they are to be treated for tax purposes.

An experienced crypto tax advisor therefore combines technical understanding with a tax assessment of the actual facts.

Reconstructing missing acquisition costs

Missing acquisition costs are among the most common causes of excessive crypto gains.

The problem arises, for example, when:

• an earlier exchange was not imported,
• coins come from a wallet that was not captured,
• one of your own transfers was treated as income,
• an exchange export covers only part of the period,
• tokens lost their history through a swap or a bridge
• or earlier transaction data is no longer directly available.

In such cases, the origin of the holding has to be reconstructed as far as possible. For this purpose, exchange exports, wallet histories, transaction hashes, blockchain explorers, emails, bank payments and earlier tax reports can be cross-checked.

The professional work is therefore not limited to an automatic calculation. First, it has to be ensured that the calculation bases used are complete and plausible.

3. Typical warning signs in a crypto tax report

Individual warnings do not automatically mean that the whole report is wrong. They do, however, show where a professional review is needed.

4. Practical examples from our work

Practical example: several exchanges and missing acquisition costs

An investor had been active on various centralised exchanges for several years and had regularly transferred his holdings to his own wallets. A crypto tax tool was set up for the first time for the current tax return.

After the import, the report showed an unusually high taxable gain. At the same time, the evaluation contained numerous holdings without acquisition costs and several wallet inflows classified as income.

The review revealed:

• An exchange used in the past was missing entirely.
• Several transfers between his own wallets were not linked.
• An old exchange export contained sales, but not the original purchases.
• Fees were in part treated as separate disposals.
• Some stablecoin transfers had been imported twice.

The missing data was supplemented from exchange exports, wallet addresses and blockchain transactions. Own transfers were then merged, duplicates removed and the balances reconciled again.

Only after this clean-up could a plausible tax report be prepared.

The decisive point: it was not a special tax arrangement that changed the result. What mattered was that the actual transaction history was reflected completely and correctly.

Practical example: DeFi activities across several networks

Another case involved swaps, liquidity pools, bridges and staking on several EVM-compatible networks.

The tax tool had automatically imported most of the transactions. However, the report contained numerous transactions that were not classified or classified incorrectly.

Among other things:

• bridge transactions were treated as sales and repurchases,
• LP tokens were recorded without a link to the original pool deposit,
• staking deposits were classified as outflows of assets,
• rewards were imported several times
• and gas fees were not taken into account consistently.

Processing the data line by line would not have been sufficient. First, the protocols used and the economic processes had to be identified.

Then related smart contract interactions were grouped and comparable transactions treated consistently. Uncertain or manually adjusted items were documented so that the work can still be traced later.

The result was not just a new tax report. A consistent methodology emerged that could also be used for the following tax years.

5. Open prior years, corrected returns and possible voluntary disclosure

Particular caution is required if crypto activities relevant for tax purposes were not declared, or possibly declared incompletely, in earlier returns.

In this situation, you should not rush to submit a single figure to the tax office. First, the following needs to be clarified:

• Which tax years are affected?
• Which transactions have not yet been taken into account?
• Is the historical data still fully available?
• Which gains, losses and other income actually result?
• Has the tax office already asked any questions?
• Have tax assessments already been issued for the years concerned?
• Is a simple correction possible, or does a possible voluntary disclosure need to be examined?

Whether a correction is required and in what form depends on the specific facts. The complete transaction data should therefore be prepared first and the tax returns concerned reviewed.

You will find further information on this topic on our page on the DAC8 risk check and crypto voluntary disclosure. The legal requirements for a voluntary disclosure to the tax office – its effect under Section 371 of the German Fiscal Code (AO), the grounds that bar it and the completeness requirement – are covered there separately.

6. What a crypto tax advisor should document

The result of the work should not consist merely of a single profit figure.

Depending on the engagement, the following components should be available:

A complete overview of the data sources

It is documented which exchange accounts, wallets and DeFi protocols were included in the evaluation and which networks were involved.

A cleaned-up transaction history

Duplicates, missing data, unclear transfers and unclassified transactions have been reviewed and corrected as far as possible.

A tax report checked for plausibility

Balances, acquisition costs, gains and losses are arithmetically traceable. Significant anomalies have been clarified.

Documented assumptions

Manual corrections and professional decisions were not only changed in the tool, but also justified and documented.

Usable documents for the tax return

The results are prepared in such a way that they can be transferred into the tax return or the annual financial statements and explained if questions arise.

Records suitable for archiving

Exports, wallet lists, reports and relevant additional documents are stored in an orderly way. This means the history does not have to be completely reconstructed again if questions arise later.

7. Why a crypto tax advisor makes sense before larger transactions

Many investors only have their situation reviewed after the end of the tax year. Reports can then be checked and errors corrected. The economic transaction itself, however, has already been completed.

Before a larger sale or an extensive reallocation, on the other hand, important questions can still be clarified:

• Which specific holdings are to be sold?
• Are the acquisition data for these holdings complete?
• Which transactions have already been realised in the current year?
• Are there open losses or unresolved holdings?
• Are private and business wallets clearly separated?
• Which documentation should be secured before the transaction?
• What consequences does the transaction have for later tax years?

Especially with larger portfolios, a specialist tax advisor should therefore be involved before implementation wherever possible. The tax consequences should be known before a transaction is carried out that can no longer be reversed.

8. Crypto tax advice as a clearly defined partial engagement

It is not always necessary to change your current tax advisor.

Our firm can take on only the data preparation and the tax classification of your crypto activities. The reviewed results are then made available to your current tax advisor for the income tax return, financial accounting or annual financial statements.

Before starting, the following should be clearly agreed:

• Who obtains the raw data?
• Who prepares and reviews the tax report?
• Who assesses individual tax questions?
• Who submits the tax return?
• Who answers queries from the tax office?

A clear division of tasks prevents important review steps from getting lost between the tax tool, data preparation and the traditional tax firm.

If the crypto assets are held as business assets, different rules apply than for private assets — in particular, the one-year holding period does not apply there. What this means for the balance sheet and financial statements is explained under crypto bookkeeping and annual financial statements (in German).

9. How to recognise a specialist crypto tax advisor

A specialist tax advisor should do more than simply pass on a software report.

In particular, look at whether the tax advisor:

• captures all exchange accounts used and your own wallets,
• understands the technical processes of DeFi and smart contracts,
• checks balances and your own transfers for plausibility,
• does not accept missing acquisition costs without scrutiny,
• cross-checks different data sources,
• documents manual corrections traceably,
• can explain the methodology used in an understandable way,
• takes into account the effects on other tax years
• and remains available if the tax office has queries.

What matters is not whether a firm uses every available crypto tool. What matters is whether it can critically review the results, classify them professionally and defend them before the tax office.

10. Which page is the right one for your concern

Would you first like to understand when a sale, an exchange, staking or other crypto activities become relevant for tax purposes? Read our crypto tax guide.

Would you first like to get a rough estimate of your possible tax burden? Use our crypto tax calculator.

Have you not declared earlier crypto activities, or possibly declared them incompletely? Find out about our DAC8 risk check and crypto voluntary disclosure.

Do you need complete preparation of your transaction data, a review of an existing report, support with open tax years or a professionally supported crypto tax return? Then a specialist crypto tax advisor is the right point of contact.

A crypto tax advisor for traceable and robust results

A good crypto tax advisor does not start with a figure in the tax return. First, it has to be clarified whether the data is complete, whether technical transactions have been understood correctly and whether the calculation used can still be traced later.

Only when the data basis, tax classification and documentation fit together is the result robust.