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Tax day frustration: Why can't the pros keep up with financial tech?

Commentary: Cryptocurrency transactions, peer-to-peer loans -- all this data ought to just flow straight into my tax return.

old navigation map with sea monsters
At tax time, new financial tech means excursions into dangerous waters. (This ancient map is actually on display at the Maritime Museum in Bergen, Norway, but illustrates the point nicely.)
Stephen Shankland/CNET

I knew doing my own taxes again would be a pain after years of outsourcing the annual headache to accountants. What I didn't realize was how much worse new financial technology like cryptocurrency and peer-to-peer lending would make the job.

My half century of life has been a series of excursions into US tax code territory previously unknown to me -- home interest mortgage deduction, married filing jointly, child tax credit. For years, I calculated taxes for myself and then my family started using Intuit's TurboTax. Even if the territory was unknown to me, I was still walking well-trodden paths.

This year, though, I entered the here-be-dragons part of the map.

Read more: The best tax software

I made it back alive, thanks to dozens of internet searches, forum posts, supplementary information PDFs and $50 I paid to a service that understands cryptocurrency math. I even read the actual law behind the US tax code to try to comprehend one point.

I'm hardly at the bleeding edge of finance. But the weekend I lost to America's annual accounting ordeal shows how badly the tax establishment is keeping pace with new ideas.

New tax territory

We lived in the UK and France for a few years, and the three-country complications meant we relied on professionals to do our taxes. However, now that we're back in the USA and I'm doing the taxes again, I've found I've fallen behind the times -- and I'm not alone.

My first difficulty was handling money we've invested at LendingClub, which arranges peer-to-peer loans. The idea is to give lenders (like me) a way to earn more interest than with money parked at a bank, while offering borrowers a way to pay less interest than what credit cards charge. As the middleman brokering (and automating) the deals, LendingClub takes its cut of the payments.

It's all documented in a tax form dozens of pages long, in our case with hundreds of transactions. But good luck getting this handily packaged, digital data into TurboTax. LendingClub is allergic to giving tax advice, so that left the legwork to me and some helpful souls who'd posted about the issue on various internet forums.

In principle, I could have imported the data directly. But TurboTax warns you that performance can degrade if you add too many transactions, and I saw enough horror stories online about grindingly slow results that I didn't risk it.

From a software point of view, I found this baffling. Today's computer science challenges are grappling with AI bias and useful recommendation engines. A 2,000-row spreadsheet has been child's play for PCs for decades. 

Intuit didn't immediately respond to a request for comment.

Cryptocurrency cringing

My next trouble was with cryptocurrency. Mostly out of curiosity to see how it all worked, I'd bought some bitcoin through Coinbase and tried another service called Heleum that seeks to make money by shuffling your investments among different cryptocurrencies at an exchange called Uphold.

Trading such assets forced me to combine that ages-old accounting problem -- calculating the cost basis of an investment -- with the brave new world of virtual currency. I quickly threw up my hands and paid startup TaxBit $50 to extract the transaction data. Happily, the service works with both Uphold and Coinbase, though if I'd had more than 200 transactions I'd have had to pay for a pricier tier.

Again, TurboTax quailed at the prospect of a lot of transactions, so I had to figure out how to enter the summary data drawn from the nicely generated but useless form 8949 that TaxBit created. Why is this my problem?

TurboTax tax complete notice

I made it back from the dangerous waters of cryptocurrency and peer-to-peer lending, but I'll have to make the same journey again next year.

Screenshot by Stephen Shankland/CNET

Cryptocurrency accounting no doubt will settle down. But the punishment I endured for just dipping my toes into the waters worries me. We're very far away from a frictionless new financial technology revolutionizing commerce by doing away with low-value middlemen.

Solar panel perplexity

TurboTax was invaluable on several occasions. I couldn't have made my journey without tax software, and it handled mainstream situations, like the country's new and differently complicated tax law, with aplomb.

TurboTax also was still useful with old-school complications like the IRS' form 1116. That cuts you some slack if you owned a mutual fund that paid taxes in foreign countries -- if you can dive deeply enough into your brokerage data. TurboTax likewise helped me comprehend a complicated capital loss carryover question.

But it often felt like there are no easy answers in our tax system. For example, does the cost of the new roof we got along with our solar panels count as part of the tax credit worth 30% of the installation cost? Do 50 different searches about this, and you'll get 50 different answers.

I went all the way to the IRS tax code, to little avail: "No expenditure relating to a solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as property ... solely because it constitutes a structural component of the structure on which it is installed."

The IRS guidance on the solar tax credit is similarly opaque. No wonder people are willing to pay an accountant hundreds of dollars to take care of it all.

Autofill tax forms

I was displeased to hear how years of lobbying by TurboTax maker Intuit and its rival H&R Block apparently is bearing fruit in the form of proposed legislation that would block the US government from providing us with tax forms already helpfully filled out with the data employers and financial institutions must report.

Taxpayers in some other countries have a system that is painless, but despite some new scrutiny, the bill passed the House of Representatives. (In response to our earlier inquiries on that topic, Intuit didn't directly address the recent lobbying criticism, but it pointed CNET to a company post concerning taxes.)

Autofilled tax forms would be great, and no doubt millions of people would love to get their time and money back. But I fear the deeper problem is the monumental complexity of the US tax code.

My 2019 state and federal taxes are done. I'd be basking in the glory of my achievement right now -- except that I know I'll have to make the same journey again next year.