Detailed Instructions

Begin by connecting your DeFi portfolio tracker (like Koinly, CoinTracker, or Zerion) to all relevant data sources. This involves linking your public wallet addresses from Ethereum, Polygon, Arbitrum, and other supported chains. The tool will use these addresses to query blockchain explorers and indexers via their APIs to extract every transaction. For comprehensive coverage, you must also manually connect to specific DeFi protocols (e.g., Uniswap, Aave, Compound) by providing your wallet address to their respective subgraphs or history pages.

• Sub-step 1: In your tax tool, navigate to 'Wallets' and click 'Add Wallet'. Select the blockchain (e.g., Ethereum) and paste your wallet address (e.g., 0x742d35Cc6634C0532925a3b844Bc9e...).
• Sub-step 2: For protocols, find the 'DeFi' or 'Protocols' section. Search for 'Curve Finance' and input the same wallet address to fetch liquidity pool deposits, swaps, and reward claims.
• Sub-step 3: Verify the import by checking the transaction count. A healthy Ethereum wallet might show 500+ transactions. Ensure the date range covers the entire fiscal year.

Tip: Use a fresh Ethereum RPC endpoint or API key from services like Infura (https://mainnet.infura.io/v3/YOUR_API_KEY) for faster, more reliable data fetching if your tool allows custom connections.

Detailed Instructions

Raw blockchain logs (like Transfer or Swap events) are not sufficient for tax purposes. This step involves transaction normalization, where the software interprets each event and assigns a standardized activity type. Critical classifications include Income (staking rewards, airdrops), Trade (token swaps), Cost (gas fees), and Transfer. The tool must also perform protocol-specific decoding to understand complex interactions, such as a single transaction that deposits collateral into Aave, borrows an asset, and then swaps it on a DEX.

• Sub-step 1: Review the automatically classified transactions. Look for a 'Type' or 'Label' column. A Uniswap V3 swap should be labeled 'Trade'.
• Sub-step 2: Manually reclassify any mislabeled items. For example, a token transfer to your own wallet (e.g., from 0xABC... to 0xABC... on a different chain) should be 'Transfer', not a taxable event.
• Sub-step 3: For liquidity provision, ensure the tool correctly splits the single transaction into two components: a disposal of Token A and Token B (cost basis) and the receipt of LP tokens (new asset).

Tip: Pay special attention to gas fees paid in ETH or other native tokens; these must be tracked as disposals and are often deductible expenses.

Detailed Instructions

This is the core of capital gains calculation. For every token you sell, swap, or spend, the system must identify its cost basis—the original purchase price in USD. It applies a accounting method (like FIFO or LIFO) you select. Simultaneously, it calculates the fair market value (FMV) in USD at the precise moment of disposition, using historical price data from oracles like CoinGecko. For DeFi-specific events, this includes calculating the value of harvested yield or liquidity pool tokens, which requires knowing the proportional value of the underlying assets at the time of receipt and redemption.

• Sub-step 1: In settings, select your preferred accounting method (e.g., First-In-First-Out (FIFO)).
• Sub-step 2: Examine a sample swap. The tool should show: Sold 1 ETH (Acquired 01/15/2023 for $1,200, Cost Basis: $1,200) for 3000 USDC (FMV at time of swap: $1,800). Capital Gain: $600.
• Sub-step 3: Verify the price data source. Ensure the FMV for an obscure token at a specific block height (e.g., block: 15867890) is pulled correctly and wasn't subject to a price spike anomaly.

codeCopy
// Example calculation logic for a swap:
costBasis = getAcquisitionPrice('ETH', '2023-01-15'); // Returns 1200
proceeds = transactionAmount * getHistoricalPrice('USDC', transactionTimestamp); // 3000 * 1.00 = 3000
capitalGain = proceeds - costBasis; // 3000 - 1200 = 1800 (in USD terms)

Detailed Instructions

Before generating final reports, a thorough data reconciliation is mandatory. Compare the totals (portfolio value, income sum) from your tax software with records from other sources, such as your own spreadsheet or a different aggregator. The goal is to identify and resolve discrepancies caused by missed transactions, incorrect price data, or misapplied classifications. Once reconciled, the software can compile the data into the required tax forms, such as IRS Form 8949 (Sales and Dispositions) and Schedule D (Capital Gains) in the US, or equivalent forms for other jurisdictions, detailing each taxable event.

• Sub-step 1: Run the 'Reconciliation Report'. Check that your ending balance for each asset (e.g., 2.5 ETH) matches your actual wallet balance.
• Sub-step 2: Investigate any warnings. A common flag is an 'Unmatched Deposit'—a token inflow with no clear source, which may be untaxed income you need to identify.
• Sub-step 3: Generate the final report. Select your tax year (e.g., 2023) and country (e.g., United States). Choose to export Form 8949 (CSV) for import into tax filing software or a PDF summary for your records.

Tip: For high-volume traders, the API export feature is crucial. Use it to programmatically pull all processed transaction data (GET /api/v1/transactions?year=2023) for custom analysis or auditing.

Detailed Instructions

Begin by exporting a complete transaction history from every DeFi protocol, centralized exchange (CEX), and wallet address you have used. This includes activity on Ethereum, Layer 2s (Arbitrum, Optimism), and alternative chains like Solana or Avalanche. Data integrity is paramount; missing a single wallet can lead to significant reporting errors.

• Sub-step 1: Use your portfolio tool's import function. For example, connect your Ethereum wallet via WalletConnect or manually upload a CSV from a CEX like Coinbase.
• Sub-step 2: For smart contract interactions, ensure you capture not just token transfers but also protocol-specific events like staking rewards, liquidity pool deposits/withdrawals, and loan repayments.
• Sub-step 3: Manually add any transactions from hardware wallets or paper wallets that aren't automatically tracked. Record the public address (e.g., 0x742d35Cc6634C0532925a3b844Bc9e...) for each.

Tip: Most tools allow you to add wallets by network. Be systematic: start with Ethereum Mainnet, then proceed to each Layer 2 and sidechain you've used.

Detailed Instructions

Accurate tax lot accounting depends on correctly labeling every transaction. Misclassification can alter your cost basis and tax liability. Focus on identifying taxable events such as token swaps, yield harvesting, and NFT sales versus non-taxable transfers between your own wallets.

• Sub-step 1: Review automated classifications from your tool. Manually verify swaps on decentralized exchanges (DEXs) like Uniswap. A swap from 1 ETH to 3000 USDC is a disposal of ETH and acquisition of USDC.
• Sub-step 2: Tag DeFi income separately. This includes staking rewards from Lido, liquidity provider fees from a Uniswap V3 pool, or airdrops from a protocol like Arbitrum. These are typically ordinary income at fair market value on receipt.
• Sub-step 3: Label internal transfers. Moving funds from your MetaMask wallet (0xABC...) to your Ledger wallet (0xDEF...) is a non-taxable transfer, not a sale.

Tip: Use your tool's bulk edit feature. Create custom tags for complex activities like "Liquidity Mining - Pool #123" to streamline future reviews.

Detailed Instructions

On-chain verification is critical for audit defense. Your portfolio tool's data must match the immutable ledger. Discrepancies often arise from unsupported smart contracts or incorrect fee calculations.

• Sub-step 1: Select a sample of high-value or complex transactions. For a swap on Ethereum, locate the transaction hash (txid) in your tool, such as 0x8b0b...a12f.
• Sub-step 2: Open a block explorer like Etherscan and paste the txid. Verify that the token amounts, gas fees, wallet addresses, and timestamp match your tool's record exactly.
• Sub-step 3: For yield earnings, check the specific contract interaction. If your tool shows a reward of 0.5 COMP, find the corresponding ClaimComp transaction event log on Etherscan to confirm.

Tip: Pay special attention to gas fees paid in ETH or other native tokens. These are deductible expenses (where applicable) and must be recorded accurately. A common command to get raw data for a wallet is using an RPC call: curl -X POST https://eth-mainnet.g.alchemy.com/v2/your-api-key -H "Content-Type: application/json" -d '{"jsonrpc":"2.0","method":"eth_getTransactionCount","params":["0xYourAddress", "latest"],"id":1}'

Detailed Instructions

Before finalizing, generate reports using the chosen accounting method (e.g., FIFO, LIFO, HIFO) as required by your jurisdiction. Scrutinize the capital gains/loss report and income report for anomalies that indicate missing or misclassified data.

• Sub-step 1: Run a report for the entire tax year. Examine the summary for total proceeds, cost basis, and net gain/loss. A sudden, unexplained spike in income may indicate an unclassified airdrop.
• Sub-step 2: Drill into the transaction detail view. Look for wash sales (if rules apply) or transactions with a cost basis of zero, which suggests an import error for an earlier acquisition.
• Sub-step 3: Compare the ending portfolio balance in the report against your actual wallet balances on a specific date (e.g., Dec 31). They should reconcile. If your report shows 10.5 ETH but your wallets hold 10.0 ETH, 0.5 ETH is unaccounted for.

Tip: Export the report to a CSV and use spreadsheet formulas to perform spot checks. For example, sum all cost basis amounts for ETH disposals to ensure it matches the report total.

Detailed Instructions

An auditor needs a clear audit trail. Your final deliverable is not just a PDF report, but a organized package that proves its accuracy. This includes raw data, reconciliation sheets, and notes on your process.

• Sub-step 1: Create a master document listing all wallet addresses, CEX account IDs, and the dates of activity for each. Include a brief note on the purpose of each wallet (e.g., "Cold Storage - Ledger Nano X").
• Sub-step 2: For every high-value or complex transaction group (e.g., participation in a liquidity pool), include a screenshot from the block explorer showing the successful transaction and the event logs, saved as a PDF.
• Sub-step 3: Document your accounting methodology. Write a brief memo stating, "For this tax year, FIFO (First-In, First-Out) was applied consistently across all crypto assets for cost basis calculation, as per the tool's setting."

Tip: Store everything in a secure, organized digital folder. Use clear filenames like 2023_ETH_Wallet_Reconciliation.pdf or Memo_Accounting_Methodology.docx. This demonstrates thoroughness and makes the auditor's job easier.