Many cryptocurrency accounting firms face the same problem London based regulated professional accountancy firm, MyCryptoTax, did - too much transactional data to easily navigate with the resources available, in turn, leading to stunted client acquisition targets. But by switching to Koinly, MyCryptoTax drastically improved efficiency, enabling them to more than double their client acquisition and revenue - even in the depths of crypto winter. Here's what founder, Mohammed Shukry, had to say about it.
Mohammed Shukry is the founder of the practice www.mycryptotax.co.uk and one of the early accountants to launch a dedicated crypto tax practice in the UK. Having tried many of the other options on the market and deciding that Koinly was the most user-friendly with the best integrations and features, he has gone on to become a big advocate for the Koinly platform, recommending Koinly to both clients and peers.
MyCryptoTax faced the same issues many other crypto accounting firms do - tackling transactional data manually takes up hours of manpower, stifling growth not only by being unable to serve more clients, but additionally through billable hours racking up due to the time necessary to accurately tackle manual transactional data.
Having tried other cryptocurrency tax solutions, MyCryptoTax switched to Koinly and found the automated API integration with leading cryptocurrency exchanges & blockchains, alongside a user-friendly interface, helped employees reduce time spent on cases, allowing the firm to more than double their monthly client acquisition and, in turn, the firm's revenue.
We sat down with Mohammed Shukrey to find out more.
"The main challenge we're facing is getting the data, as it's the first step in compiling the taxes.
Most of the other platforms that we used had limited integrations and automatic APIs. So we had to always input the data manually with input interfaces that aren't that user-friendly. So we needed to kind of manually amend the data, so it took a lot of our time just to get the data uploaded, not even to reconcile. So just uploading alone was taking a lot of time. So I will say that was the biggest challenge we had."
"I think we started using Koinly two or three years ago, and we had some clients already onboarded on another platform.
Since we didn't want to change the platform halfway through, we completed that tax year for some of them. In our new plans, we kind of introduced Koinly where we could see the efficiency in terms of the automatic API number of exchanges they had. I think that was the biggest plus point we had at that point. Even when manually uploading data, the interface was very user-friendly. So you don't need a different interface for each exchange; instead, we had a global interface where we could easily amend it and then upload the data. It was very useful, as I would say I had about 50 to 60 clients back at that time when we started, and then I think we have onboarded another 30 to 40 clients now with Koinly."
"That’s right! We were losing business because we had to have lots of manual interventions. Obviously, we had to build that into the fee we are quoting. And since the fees weren't always competitive, we couldn't offer the service at a lower rate. Because if someone has to spend two or three days working full-time on the data, it's not a win-win situation for the client and us, as we have to spend more time and charge more. Eventually, we were losing, and sometimes with new clients who have very advanced requirements, we will say, "Okay, we can't cater to you because we have capacity limitations," because it's more complex and we don't want to spend all of our time dealing with one client."
"The more complex, the more billing time and value for the practice because, as you know, in the last two years we’ve received a lot of clients who started their investment very early. So it's back in the tax year of 2014 or 2015. Obviously, those are the clients who made a large amount of profit, so they don't mind paying taxes. And this had a significant impact on our ability to ramp up revenue because we could charge a much higher fee in one tax year and, in some cases, go back to multiple tax years and do voluntary disclosure for the previous tax year. So it was worthwhile, and those are our target clients. Before Koinly, because of our limitations, we weren’t able to serve this market as much as we wanted."
"Prior to implementing the solution, I would estimate that we could only onboard one or two new clients per month, whereas we had the opportunity to add maybe 5–10. So, we were losing out on a lot of business because we didn’t have the facilities to work with them."
"It was a manual process most of the time; we were still using a few other tax software programs. However, we were limited to the most basic transactions. So we were resisting incorporating complex scenarios such as DEFI and NFTs because there was no way we could integrate this with just the basic transaction in a spot trade. Thus, we were only able to focus on a small pool of clients and were unable to cater to the requirements of many advanced clients."
"I believe it was the user-friendliness of Koinly's interface and the simplicity of navigation. Reconciliation was not that complex because automatically, Koinly flagged the items that needed attention so we could focus squarely on them. Most of the time, 80% of the issues will be caused by 20% of the issues. So once you restore one, we just fix the same issue again. So that way, we can turn around solutions for the clients much quicker. That's very useful for us because time is everything in accounting. Since our time is valuable, we chose this method because it saves us a lot of time and eliminates bottlenecks."
"No, when we started back at that time, some of the advanced functionalities were in the build stage. So they hadn't even been released, but looking at the pipeline and the solutions you guys were working on, I was confident. Especially for example, back in 2019 or 2020, when we had the need for NFTs that was not automated, we said it's okay, we are working on it, and right now we have a manual workaround. So I was fascinated by the speed with which you guys were introducing new functionalities.
"So that's another plus point where I would say Koinly had a strong edge over the other providers because, as you know, the crypto space is a rapidly moving industry where you need to react quickly, and I saw that with Koinly. I would say your technical team is doing a fantastic job on that scale. I'm not saying it's all 100%; we have all the solutions, but at least the main ones, like last year when we incorporated the Ethereum NFT. So you said, "Okay, we're going to get all the other cross chains, as you know, and Solana is going to be onboarded as well." So, that's a very good point, I would say.
"So overall, no. I didn't have any hesitation to continue with it because I had tried other platforms as well and could compare them. I knew what each of them was offering and how quickly they were able to come up with solutions for the problems, and Koinly leaps and bounds better."
"At the moment, we have about eight staff members. So there are seven of them who use Koinly."
"We cover most of our cryptocurrency clients with Koinly. We still use some of the other platforms because some of our existing clients use them, and we don't want to have to deal with migrating. However, all of our new clients are set up with Koinly from the start to collect their crypto transactions.
"So we go back to the inception to get all the cost basis right and then calculate their taxes, and we use Koinly for tax planning as well. So this is another majorly overlooked area. I don't think many accountants know they can use Koinly for tax planning, and that’s a big benefit that Koinly offers.
"So we can do a "what if" analysis; we can say, "Okay, let's do some dummy transactions and see how we can harvest some loss, how we can do negligible claim loss." So we use the manual entry as a sort of workaround to show the clients, "Okay, if you do this, you can save this much tax." So, in addition to the compliance tasks, we also use Koinly for tax planning and as a data repository for future references, like when we had, as I remember, a tax investigation client and we had to go back and produce all the data. So Koinly was our data source, and with Koinly, we could record all of our adjustments, and we were able to do everyone in one place. So I would say, for compliance, tax planning, and supporting the compliance requirements."
"That's right! So this is where we keep our clients, and most of our clients who joined us are still with us because not only are we able to do reactive tax planning at the end of the tax year, but we also sit down with them before the end of the tax year and review their portfolio, and we also ask them to keep their portfolio in real-time. So that when the market is kind of swinging, we can do some strategies to say, "Okay, you can do some loss harvesting and help them take advantage of these situations so that it can benefit them." So, ultimately, we are here to make them save on some tax as well. So Koinly is a useful tool for us to facilitate that because of the real-time data.
"We just use the data set. So we could do say for example sample manual sale. For example, assume that you bought your Ethereum at a very high price when the bull market was at 2000 pounds, but if the market is very low now we could look at it and say “look you can realise this loss before the end of the tax year” so that you can offset these losses with your gains, what you have on other currency. So your overall tax liability will be minimal. These are legal measures available for investors. So we can facilitate these because within Koinly the full data set is there and we can do a dummy transaction i.e “what happens if you sell it at this price?” And then the Koinly will say okay, now your gain is this amount.
"So we can not only explain to them but with Koinly we can even show them the results. So that makes it a lot easier for us to educate our clients. We believe in win-win strategies for us and our clients because we want to keep our clients happy by not only being compliant, so everything is above board, but also helping them save some tax because if there are any legal measures they can use, then we will help them do this.
"Another strategy we often use in tax planning is around spouse-partner transfers, so they can transfer some of their gains to their spouse so that they can realize their gain and avoid paying taxes because they can utilize the personal allowances of both individuals.
"We also have scenarios of negligible claim loss. So the way it works is that, for example, Luna is a typical example. So when you lose the value of your asset to a negligible value, we can realize these losses to claim a tax advantage. Because all the data is available within Koinly. We can ask the client, do you have any project you think that may now have a negligible value? They will say, "Okay, I had some Luna." Then we'll go and say, "Okay, these are the Luna transactions. Do you have a portfolio of, say, 100,000 Luna, costing 50,000 pounds?" So if you realise those losses, you can make savings on what you have to pay."
"The efficiencies, yes. We can see remarkable efficiency and, as I previously mentioned, the ability to help advance planning in terms of DFI and NFTs because of Koinly, which allowed us to support these clients' needs. Most importantly, in efficient time, less time. That's the key! Even previously, we could do it manually, but with crypto, as you know, the transaction can very easily spiral into the thousands. So working with manual data is dangerous because it makes us prone to more errors. So when you have automatic solutions like we have with Koinly, it helps you avoid those human errors as well."
"Growth-wise, with Koinly we’re now able to acquire about 5 to 10 clients a month, sometimes around 15 to 20 during the busy period. In terms of revenue, we have been able to double our revenue from the previous tax year. So it's 100% growth for us. So in this recession-prone COVID era, where other accountants are struggling, we are kind of pushing ahead and have been able to improve our staff base from initially three in 2020 to now nine. It’s tripled, so we’re doing really well. "
"Yeah, that would be a very manual process because most of the other crypto tax providers only have integrations with the main exchanges. In the last few years, we’ve seen a lot of crypto investor clients diversifying from the bigger exchanges to smaller, more unknown platforms. So it would be a much more manual and cumbersome process if we didn't have the Koinly solution in place."
"Definitely we recommend Koinly to everyone. The majority of our clients are now using Koinly. I would say around 70% of our clients. Some clients come with residual plans with other platforms, but when a client comes to us, we recommend Koinly as a solution because they don't know what the best platform is or they have tried another platform and have complaints like, "I have tried this, but I couldn't get all the data." Then we'll say, "All right, try Koinly." We'll set it up, and we have the partner license as well. So we grant them the license, which will allow them to sort of upload all of the data into one location."
"Yeah, I would say dive in. Nothing ventured, nothing gained. So a lot of people have a fear like, "Okay, what is crypto? We don't want to go near it." I had a lot of clients come to us or even some other accountants refer clients and say okay, I don't want to deal with crypto. But the reality is that crypto is here to stay. So jump in. If you think you can't handle it, my advice would be to try with a simple client set and remember that there are a lot of useful videos and knowledge resources available on Koinly as well so you could learn by yourself. In this day and age, it’s all about continuous learning, and that makes all the difference. If you cease to learn then you will be doomed, you know, especially in this artificial intelligence, and this knowledge base economy, you need to be spending your time learning new things and I'm sure Koinly has a lot of resources which could make it easier for the journey so and also there are fellow Accountants that can help you as well. So if you get stuck somewhere you can raise a ticket with Koinly or look at what other Accountants are saying about the same problem on the Koinly forum to learn a bit more. So that really gives you some sort of a starting point.
"So you're not alone. That's the message I want to send to fellow accountants. So, try it out. Also, there is a huge potential for crypto taxes. With my practice, we’re so busy that anytime around December and January, we have to push back on clients as we cannot cater to all their requirements. So last year, we started doing our 2021-2022 tax year in April itself. So we sent letters to our clients letting them know “Okay guys, we are going to be crazy busy around January and December, so come on board quickly so we can complete it and that allows us more spare time to onboard new clients.
"So you might wonder why am I advising this to accountants who should be my competition but it’s because we are not going to lose anything, there is huge potential out there and there are so many clients that need to be served so the market is huge, it’s big enough for everyone. If you have a crypto tax practice you have a big opportunity to take advantage of and more Accountants should take advantage of this."
"So thank you very much for your support from Koinly. We are very happy. We also recommend most of our clients to Koinly and similarly, we also get business from Koinly as well because the accountant listing on the Koinly directory has been invaluable. We get a lot of clients saying that they found our details through Koinly.
"Crypto investors sometimes run into issues trying to do things themselves and they’re unable to resolve it so I would always recommend if you’re an investor yes you can do it yourself but if you have an accountant who is familiar with crypto, they can advise on tax planning and other measures. So you’re not doing it alone, you have some solid support in your corner. There are plenty of scenarios where crypto investors do taxes on their own, but when they want to take out the money or spend the money, they run into problems with doing the KYC verification because the banks or the lawyers ask, “is there someone that can independently verify your claims so you can get the money?” So if you have an accountant they can support you and you can easily get the money.
"There’s also the added benefit of your accountant advising you on how to save on taxes as well. Because the policies change every year, the rules change very quickly and you have to quickly adapt, so if you're not familiar with all of these, you will be losing this advantage. So that is another area they should be focusing on, especially for the investors who are directly using crypto tax calculators without an accountant."