When using Koinly for tracking and calculating crypto taxes, you might notice that the platform also tracks your fiat balances (such as USD, EUR, GBP, etc.). However, you might wonder if these fiat balances impact your tax calculations or if they can cause any issues.

Do fiat balances affect tax calculations?

In short, fiat balances themselves do not directly impact your tax calculations in Koinly. Taxes are generally calculated on capital gains, losses, and taxable events that occur from cryptocurrency transactions—such as selling, swapping, or spending crypto.

Why does Koinly track fiat balances?

Fiat balances are tracked to give a clearer picture of your overall financial activity. For example, when you buy crypto with fiat, Koinly needs to know the amount of fiat spent to calculate the cost basis for the crypto you’ve purchased. Similarly, when you sell crypto for fiat, Koinly records the fiat amount received to determine the proceeds and calculate any gains or losses.

Can fiat balances cause issues in Koinly?

While fiat balances themselves don’t cause tax issues, some scenarios related to fiat may lead to potential discrepancies in your Koinly account:

1. Missing deposits or withdrawals: If you manually add fiat transactions or don’t fully sync all fiat-related transactions from your exchanges and wallets, it may create balance discrepancies. While this doesn’t affect your tax reporting, it can make your portfolio appear inaccurate.

2. Missing purchase history: If a fiat deposit is missing, or not properly recorded, it may lead to an incorrect cost basis. For more information, see Missing purchase history for XYZ 📖

Best practices for handling fiat in Koinly

To avoid potential issues:

• Sync all transactions: Ensure that both your fiat and crypto transactions are fully synced from your wallets and exchanges.

• Check for missing data: Review any warnings or flags in Koinly for missing or incomplete transactions.