Understand transaction types, how to label them, and how to address warnings.
What do all the transaction types stand for?
There are four main types of transactions in Divly. These are deposits, withdrawals, trades, and transfers.
A deposit occurs when you receive crypto to your wallet. By default, Divly assumes you have purchased crypto at the daily market rate when a deposit occurs. This is unless the deposit is labeled or matched with a withdrawal to form a transfer.
A withdrawal occurs when you send crypto out of your wallet. By default, Divly assumes you have sold your crypto at the daily market rate when a withdrawal occurs. This is unless the withdrawal is labeled or matched with a deposit to form a transfer.
A trade occurs when you exchange one cryptocurrency for another cryptocurrency or fiat currency. In most countries a trade is considered to be a taxable event even when you trade crypto for crypto. You can change this in Settings if needed.
A transfer represents a transaction between two of your wallets. For example when sending crypto from an exchange to a hardware wallet or vice versa. Transfers are created by matching a withdrawal from one wallet to a deposit in another wallet. You can read more about transfers and the matching process here.
Transfers typically do not represent taxable events as the wallets are owned by the same person.
What are labels and when should I use them?
Every deposit and withdrawal has the option to be tagged with a label. Labels are used to ensure that the transaction is correctly represented and taxed accordingly. You can easily set labels in Divly in the Transaction tab to properly calculate your taxes.
Divly provides a system to label withdrawals and deposits. Every label has its own specific rule set which when used is applied to a transaction. Not only is it nice to have a better labeled overview of your transactions, but it also ensures that the taxes are calculated correctly. The rules applied depend on the country you specified as your country. Divly provides tax guides for supported countries where the effect of each label is explained in detail.
In some cases labels may be automatically set when importing your transactions. This depends on the specific integration with the wallet or exchange. In other cases you will need to set a label manually in Divly. You can either do this one transaction at a time or batch edit many at once if it helps you save time.
It is important to label transactions correctly to ensure you pay the correct amount in taxes.
Do I need to label all transactions?
Not all deposits and withdrawals need to be labeled. Sometimes a withdrawal should just be a withdrawal, and a deposit should just be a deposit. Trades and transfers are never labeled.
Divly handles unlabeled transactions accordingly:
A deposit is assumed to be a purchase of cryptocurrency using the price in local currency on the day of the deposit. This affects the cost basis.
A withdrawal is assumed to be a sale of cryptocurrency using the price in local currency on the day of the withdrawal. In many countries this is a taxable event.
If the default assumption is correct, then you can leave them unlabeled. However, if a label suits the transaction more appropriately then please use that label.
In some cases the deposit or withdrawal should represent one side of a transfer between your own wallets. You can read more about transfers and how to ensure they are correctly matched in the FAQ.
How are trading fees accounted for?
Trading fees are accounted for when using Divly. A detailed explanation will be provided soon.
How does Divly match transfers between different wallets?
In cases when you send crypto from one wallet to another it is important that the withdrawal and corresponding deposit match as a transfer. Transferring crypto between your own accounts is not a taxable event and you should be able to do this without worrying about profits or losses. Divly has built an algorithm that matches transfers automatically for you.
Practically speaking, a transfer boils down to matching a withdrawal from one wallet to a deposit in another wallet. Since the wallets don't know if you own the other wallet, all the matching of transfers needs to be handled by you (or your tax system). If left unmatched they can create incorrect tax consequences. As such it is important that you check all unlabeled withdrawals and deposits to ensure that they should not in fact be a transfer.
Fortunately, Divly has built an algorithm that automates this process and matches transfers for you. The logic follows:
The algorithm is not bulletproof but does a great job matching the majority of transfers. There are scenarios that could cause a transfer to remain unmatched or incorrectly matched. These include:
It is always worth checking that all transfers have been matched. If not, try to understand why it did not match from the information above so you can fix it.
How do I fix “Missing market price”?
This issue means Divly can’t find the price for a specific cryptocurrency on the day of your transaction. To avoid paying the wrong amount in taxes, Divly needs your help in providing the correct market price expressed in your local fiat currency. This is done by editing the “Net Worth Amount” of the transaction found in Divly.
Divly automatically fetches cryptocurrency prices and converts them to your base currency using different pricing API’s. This means you don’t need to worry about finding the correct conversion rate for every transaction! This is a large time saver and a great reason to use a crypto tax automation tool in the first place.
For most transactions Divly will be able to find the prices automatically and perform all the necessary tax calculations. We use a crypto pricing API that covers thousands of cryptocurrencies and FX API’s that ensure we can convert them to your base currency.
However, in some situations Divly won’t be able to find a price. This can occur when:
When you see a transaction with “Missing market price” it is best to resolve it to avoid paying the wrong amount in taxes. Divly will otherwise assume the crypto is worth 0 USD on the date of the transaction.
When there is a missing price, Divly flags this as an issue under the Transactions tab. You will also see issue notifications on the Tax Report tab.
Follow these steps to resolve the issue(s):
How do I fix “Missing purchase history”?
This issue means Divly can’t find a historical record of where you purchased the cryptocurrency you are currently selling or withdrawing. To avoid potentially paying too much in taxes, Divly needs your help understanding what price you paid for the cryptocurrency to calculate the correct cost basis.
Divly automatically calculates the cost basis of every cryptocurrency you have transacted with. The cost basis is the same thing as the price you paid to purchase your cryptocurrency (including associated trading fees). The cost basis is used when calculating your taxable gains:
Taxable gains = Sale price - cost basis - transaction fee.
The larger the cost basis, the lower your taxable gains. Unless provided, Divly will assume you purchased the cryptocurrency for 0 USD. Consequently, it is important to include all historical transactions to ensure the cost basis is correct and you don’t overpay in taxes!
Firstly, ensure that you have imported ALL of your transactions into Divly. We use your historical transaction data to calculate your cost basis. There are several methods you can use to import your transactions. Assuming your transactions are all included, then this issue should be resolved.
If you happen to have lost transaction records and don’t know what to do then follow these steps: