Roughly 5% of Americans own crypto assets, but only 0.04% of those people reported crypto gains or losses on their taxes.

Clearly, something doesn’t add up, and the government tax collecting agencies are starting to notice the delta as well. Although regulations are still playing catch up in many countries, the tax law is often clear: you need to pay taxes on the gains.

When it comes to traditional assets, governments rely on financial institutions such as banks and brokerage firms as a check and balance against consumers hiding their gains.

However, no such audit record exists in the crypto world. Now governments are starting to build their own audit tools in order to examine the transactions of traders and exchanges.

So if you’re a crypto trader and you fail to report your capital gains–even if you just miss a few trades–you might be on the receiving end of a hefty fine, or even a jail sentence. I don’t know about you, but that’s definitely not on my personal goals list.

“But what about my anonymous account?”

That won’t save you either.

There is a misconception that the government can’t connect you to your crypto accounts because they don’t have your name and identifying ID number associated with them, making you immune to their audits. Nope! The government can now figure out who you are using Blockchain tracing and the AML/KYC information from exchanges. They just need to build the tools to do it, and they are.

Now that we’ve established that you need to pay your taxes on crypto, that brings up a separate issue: how?

I searched pretty extensively to find a tool that would make this easy, and give an indisputable record to the government to prove I had done it right. I had no such luck. With multiple exchanges, lots of complicated laws and many more issues, I was quickly overwhelmed. I have even worked in the tax field so I had some basic knowledge to start with!

Here were some of the problems I came across that I am sure others share.

I deal with multiple exchanges so often that I have partial records in multiple places. The exchanges don’t have any aggregated “tax reporting” functions. I often have to sort through trading logs line by line, plus there are dozens (if not hundreds) of special cases, like a large cash out in the EU triggering the AML laws, hardforks, airdrops, master nodes, poolmining, and staking.

My head hurt just trying to figure out the scope of the issue, which got me thinking about a feature wishlist for a good crypto tax software product

Here’s what I think good tax software should do for you:

  1. Connect to your any hot/cold wallets and pull in transactions (including exchanges with wallets).
  2. Create an immutable private ledger to store all the data (enough to pass government audit). You get bonus points if you can prove it is right without revealing the information underneath so the government knows it is right without you having to send them all the raw data.
  3. Generate summary reports for each country to allow submission. Country by country or even for states/provinces as needed (for example in the US).
  4. Enable tax consultants to log in and see the results to allow them to help their clients optimize their positions
  5. A nice dashboard to give me status and tell me if I need to mail a check into the various governments
  6. Connections to various government sites and banks to enable rapid and secure payments with receipts

I know I’m asking a lot, but I’m also hopeful. As part of 500 Startups’ summer Blockchain program, I am investing and pushing for a solution with one of our portfolio companies, who will hopefully ship a product this year I can use.

Until then, I am limiting some of my crypto activities just to avoid the paperwork associated with paying the right taxes on them, at least for now.

Do you know of a good tax product I should be using? Let me know, I am interested to hear your issues. Just message me on Telegram @NoOneofSignificance or email rob@500.co