Best Crypto Tax Tools You Need to Know of
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 asset in 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.
Related: Benefits of Using Cryptocurrencies
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 return form (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 a commodity. 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.
The Top Bitcoin & Cryptocurrency Tax Software
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.
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.
Koinly is 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 Accointing presents 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. Their Basic 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.