The world of cryptocurrency is a relatively new one, having just come into the picture a little more than a decade ago, back in 2009. In that time, it has grown massively in terms of scale and importance within significant segments of the global economy. However, laws regarding cryptocurrency are still largely lacking in both scope and overall clarity. That being said, its presence has not gone unnoticed by the IRS regarding how it can be used within the realm of federal income taxes. Please continue reading to find out more about the elements involved in cryptocurrency taxation, as well as the selection of top-quality crypto tax tools and software that you can make use of.
What are Cryptocurrency Taxes?
For the purposes of federal income taxes, the government considers cryptocurrency to be “property,” and the Internal Revenue Service (IRS) expressly declared it to be a form of capital assetin a notice issued back in 2014. Or, more specifically, it proclaimed that cryptocurrencies would be viewed strictly as virtual currency, which would be taxed as a form of property. Due to this, crypto taxes are essentially the same as the taxes you pay for any other gains earned through the exchange or sale of a capital asset. Therefore, as time goes on and the presence and use of various kinds of cryptocurrencies continue to grow, it’s only going to become increasingly important that people fully understand how to keep track of their crypto losses and gains. It’s also essential that they and how to report them correctly on their yearly taxes.
What Do You Need to Report on Your Taxes Involving Crypto?
Because cryptocurrency, as a virtual currency, is treated and taxed as a form of property by the IRS, there are several critical components for you to keep in mind when filing your annual taxes. For example, if you sold, exchanged, or used a cryptocurrency to purchase services or goods, you may need to report that as part of your gains income tax. However, you can also deduct your losses from your taxes if any cryptocurrency you sold or spent happened to lose its value over the year. Additionally, you may make a deduction in your taxes for a charitable donation if you chose to donate any of your cryptocurrency to a nonprofit organization that is eligible for such deductions.
When you start filing your taxes, your federal annual tax returnform (Form 1040) should ask whether you have exchanged, sold, or acquired any virtual currency. If you have, you’ll have to report the gains or losses from them. This can be done by determining the U.S. dollar value of the crypto when you acquired it, compared to its value when you sold or spent it. This should provide you with your tax liability. However, you are not required to answer this section of Form 1040 if the only crypto transactions you engaged in were crypto purchases with real-world currency.
Not Reporting Your Crypto Gains, Losses, and Transactions: What are The Penalties?
Cryptocurrency exchanges won’t generally be sending any tax documents or forms to your home for you to use when filing your taxes (though some do generate reports that can help you). Therefore, it’s your responsibility as a crypto investor and user to self-report all of your cryptocurrency exchanges and transactions as accurately as possible. Failing to do so (even accidentally) can lead to an audit conducted by the IRS, along with penalties and interest fees. At the same time, purposeful tax evasion may result in criminal prosecution, including a five-year prison sentence and a potential fine of as much as $250,000. This is a primary reason why crypto users should actively consider investing in quality crypto tax tools and software. The more accurately people can keep track of their crypto transactions and report them on their federal tax returns, the less chance that any of the above issues may occur.
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Why Do You Need Tax Software and What Does it Do?
Crypto is considered property and a type of capital asset by the IRS. However, it’s also essential that people understand that current laws and regulations regarding cryptocurrency are still new and tend to be quite vague at the best of times. In addition, other parts of the government strongly disagree regarding what kind of assets cryptocurrencies are. For instance, the United States Securities and Exchange Commission (SEC) does not see Bitcoin and other forms of crypto as a security but as acommodity. This is a significant part of the reason why it’s so essential that cryptocurrency users and investors understand the importance of efficient crypto tax software and how to make use of them when it comes time to file taxes.
Crypto tax software is designed to take data directly off of cryptocurrency exchanges and organize it into an easily understandable format. That way, people can use it to help them correctly file their crypto taxes without recording all transactions by manual means. Quality crypto tax tools will also locate and track the values of your cryptocurrencies during transactions and over time while also noting your final capital gains or losses. Additionally, since the IRS requires that cryptocurrency information be reported in a particular format, many of the best crypto tax tools can generate completed reports in the same style and format that the IRS requires.
Now that the need for practical, high-quality crypto tax software has been explained, it’s time to explore some of the best options presently available to users on the market. While several other pieces of software could reasonably be included on this list, below are the best-rated, most currently advanced crypto tax platforms that any user or investor in cryptocurrency would do well to consider making use of. Please keep reading to discover more about all of the benefits and capabilities of each one to help determine which would be most beneficial for you and your unique financial situation.
Mudrex offers advanced trading strategies to help you invest in the right ways. Find out which products are best for your personal needs by answering a few questions, and your investments will be matched with an appropriate product tailored just for you.
You can get long-term protection or quick spikes in value; it is all about choosing what makes sense for your situation.
Mudrex will keep your information safe. Mudrex encrypts all API traffic, keeps your connection secure, and prevents third parties from listening in through SSL and TLS 1.2 technology to protect you against eavesdroppers.
TaxBit is a revolutionary blockchain on-demand service for preparing and filing taxes. It is a new, exciting way to file your taxes that involves less work with the same level of cost-efficiency as traditional methods.
Taxbit is not your average crypto tax software. It was founded by Certified Public Accountants (CPAs) and attorneys, who want to make sure that no matter what happens with any future audits or investigations into their taxes, they will have receipts for every transaction in case it gets called up on the spot.
Taxbit is a cryptocurrency trading platform that integrates with every major exchange. It is backed by some of the best Fintech and crypto VCs, including Peter Thiel’s Valar Ventures, as well as Winklevoss Capital. Its partnership will allow users to prepare their taxes in just two minutes for both BlockFi tax returns.
CryptoTaxCalculator is an excellent tool to help make sure you are maximally compliant. With the current uncertainty in tax law, it is more important than ever to prepare for your taxes.
CryptoTaxCalculator is one of the most accurate crypto tax software solutions software, providing direct support for over 400 exchanges,wallets, DEXs (decentralized exchanges), and DeFi (decentralized finance) protocols.
One of its remarkable features is that it offers powerful & accurate tax reports. CryptoTaxCalculator is a great choice for investors looking to get started with crypto taxes without the hassle of learning how to use complicated platforms.
Coinpanda is the perfect tax software for Bitcoin and cryptocurrency traders. The design will make you more productive, whether that means wasting less time with your taxes or making fewer errors while calculating/analyzing data—all within mere 20 minutes.
The CoinPanda app is a great tool for people who are just getting into the cryptocurrency market. With features like accessible toolbars and dashboards, it’s easy to get your data in an uncluttered format so you can make informed decisions on what coin or token might be best suited for investment opportunities down the road.
Coin panda supports many types of cryptocurrencies and provides a user-friendly interface that makes it easy to navigate.
It has DeFi staking tools and futures, making managing portfolios simple for users who need guidance on how they should report their taxes based upon clients’ local cryptocurrency tax laws.
In addition, you can reach out to Coinpanda’s specialists in case you need some help with something or if you would like to know more about the ins and outs of cryptocurrencies.
The Blockpit crypto tax calculator is a go-to option for anyone who owns cryptocurrency. Its features include calculation methods, taxes reports and API imports with Bitcoin & Co., making it an essential tool in investors’ kits.
Additional functions that you can benefit from include:
Portfolio Management. You’ll be able to record all the trades you’ve done with ease and get an instant overview of how your portfolio is developing. You also get information about which profits are taxable, so there’s no guesswork involved!
Downloadable tax report. Blockpit can give you an accepted and audited calculation. This can be submitted to the tax office without worrying about mistakes. It gives you the option to give a PDF download of your tax report.
Automatic import. Blockpit is constantly being updated with the latest APIs.
BearTax has come to be one of the easiest ways to calculate your crypto expenses. The platform uses over 25 major types of exchanges to calculate your gains to calculate your expenses efficiently. Thanks to the modern interface, it can export documents to a folder so you can keep all your tax information in one place.
The BearTax algorithm is smart enough to match your deposits and withdrawals across their supported exchanges. Thanks to this helpful feature, the chances of hitting a negative balance decrease. This, in turn, makes it easier and more accurate to file your taxes.
The gains and losses screen for capital gains calculation makes it so simple that even if you don’t have experience using this type of software, you can easily review your tax liabilities with the date they were bought or sold.
Additionally, there is a clear view of how much was earned from each transaction–both in USD value and percentage — making it easier than ever before.
CoinTracker’s software syncs your crypto assets and transactions from exchanges, wallets, or local markets to help keep you informed about all of the currencies that are important in one place.
A user-friendly interface provides an easy way for investors to watch their investments grow or fall, depending on how well each currency performs over time.
Additionally, CoinTracker also provides a performance tracker, which gives you a clear picture of your crypto investment performance over time.
Signing up for Coin Tracker will only take a few minutes, making it easy as pie! Just log into coin-tracker using a Coinbase account and let them do all the hard work by providing analytics such as total invested amount over time so far.
If you go to the Coin Tracker website, you’ll see four different types of pricing packages that range from FREE to $189.00 to even customizing to your unique needs. All of their options include cost basis reports (FIFO, LIFO HIFO ACB Share pool), auto-sync with exchanges and wallets, and capital gains report generating features.
They can also send tax forms like IRS Form 8949 for those taxed on profits made by trading stocks automatically through this program!
CryptoTrader is a fantastic tax software that is specifically designed to help save you time and money while maximizing your tax refund as much as possible. You can try the software for free to gain access to a report preview generated after importing your cryptocurrency transactions from all of your regularly used exchanges and crypto platforms. The data transfer is simple and easy and works whether you regularly trade, stalk, mine, or are simply trying to earn interest in your cryptocurrency. The data can then be applied to a wide range of different tax forms, including cryptocurrency income reports, short and long-term sales reports, Form 8959, international gains and losses reports, audit trail reports, and others. Once completed, you can then download your completed tax reports to file with the IRS. CryptoTrader is a trusted partner of TurboTax, and its services have been featured by Forbes, Bloomberg, AccountingToday, and several others.
Koinlyis a cryptocurrency tax software that prides itself on being able to collect your crypto data from a selection of over 300 different exchanges and wallets to provide you with your crypto tax report- including Form 8949 and other comprehensive tax reports– in under twenty minutes. The software expertly connects to the blockchain wallets and exchange accounts of users via public addresses and API or CSV files. This allows it to track all of your crypto transactions while monitoring the fluctuating values of your various cryptocurrency. You can sign up for the software for free today, and your account will track up to 10,000 transactions while providing you with a preview of your overall capital gains tax. Free accounts can also be used indefinitely to track all of your basic crypto activities, like trades.
The cryptocurrency tax software offered by Accointingpresents users with a quick and convenient way to manage, track, and report information from all of the crypto platforms you use, all from a single location. Their services are specially configured to allow you to access and control your crypto portfolio, explore the crypto market, and file and report your taxes. They have been featured in Bloomberg, Yahoo! Finance, The Block, along with several others. You can register today for a free account to import an unlimited number of crypto transactions but will only be provided with a tax report for up to 25 of them. Their free account also includes access to a holding period page and tax loss harvesting information. Also, please feel free to look through some of the other quality resources they provide, including their detailed and insightful Crypto Guide.
CoinTracking is a robust crypto tax software that can analyze all of your crypto tradings while generating real-time reports on a wide range of specific data, including profits and losses, the fluctuating value of coins, along with realized and unrealized gains. That data is then easily compiled by the system into 25 customizable crypto reports and a range of specific tax reports from over 100 countries worldwide. Users can also receive professional help from a full-service team of crypto tax advisors and experts knowledgeable on the crypto tax laws from numerous countries. You can register for a free account with them today to gain access to tracking for over 200 cryptocurrency transactions. You need to purchase their pro account for $10.99 a month to receive access to their tax and capital gains reporting, but the price is more than worth it for their top-quality services.
ZenLedger is a cryptocurrency tax software that endeavors to make DeFi and crypto taxes as simple as possible for investors and tax professionals alike. Their system easily allows users to track crypto trades, profits and helps them to ensure that their crypto taxes are as low as possible. This function makes it so that ZenLedger users never end up overpaying on their crypto taxes again. Their easy-to-use, three-step process makes importing and reviewing your transactions a simple process so that you can download and send out your tax forms without any unnecessary hassle or stress. Take advantage of their offer for a free account today to access all of their detailed tax reports for up to 25 different cryptocurrency transactions. Their software connects to and supports data from well over 400 different crypto exchanges, including over 30 specialized DeFi protocols.
TokenTax is a full-service cryptocurrency tax accounting and crypto tax software platform. It is the only one that allows users to connect to every currently active crypto exchange operating within the market so that no matter where your data is coming from, it will be included in your final tax reports. They can seamlessly track your capital gains and losses and your tax liability for every transaction that utilizes virtual currency. They can generate all necessary tax forms related to cryptocurrency that can be directly used for your tax return or imported into TurboTax.
And if you need help with filing, their expert team of tax filing professionals can help you take care of your entire return. Unlike the other crypto tax software discussed here, TokenTax does not offer users access to a free account as part of their services. TheirBasic Plan starts at just $65 per year, and it provides tax analysis and reporting for up to 500 individual cryptocurrency transactions. Would you like to discover more information about the power of cryptocurrency and its potential to help you take more control over the future of your finances? Check out the stellar resources provided by unBanked today to learn more.