It can be challenging to deal with the IRS at tax time if you’ve been trading cryptocurrencies a lot. It is not always required for crypto exchanges to send tax forms summarizing your annual activity, unlike stockbrokers. It’s your responsibility to figure out how much you made last year and what that means for your taxes. There have been several software companies that have developed products to help investors and traders prepare for filing Bitcoin and other cryptocurrency taxes.
Your profits and losses are generally compiled using data from your exchange. Your records are used to generate an IRS Form 8949 using crypto tax software. A stockbroker might send you a form to catalog your equities sales in the past year, but this document is used to report capital asset sales.
Crypto tax software providers also typically offer other reports and services based on your requirements. You can reduce your taxes when you sell investments for less than you paid when using most of the leading products.
What Is Crypto Tax Software?
Software used for preparing crypto tax returns is known as crypto tax software. You can file taxes in a matter of minutes thanks to this software, which simplifies the process of filing taxes. For proper tax monitoring, top exchanges like Coinbase report their users’ activities to the IRS regarding their crypto activities. In the crypto tax software market, there are many options. A few are free to use, while others are paid, but offer limited features in free plans. Software like this is already programmed, so anyone can use it to file their taxes.
A crypto tax software program can also help you keep track of your crypto portfolio in addition to calculating tax. Your transactions can be organized and tracked using it. This helps you to sort your transactions into gains and losses, which may be automatically translated into tax returns.
How does crypto tax software work?
In addition to filing taxes, crypto tax software automates the process of managing your crypto portfolio, as well. Further, depending on the software, portfolios for many cryptocurrencies can be synchronized across exchanges and wallets. In order to use the software, you need to connect it to your exchange or wallet account. Once this is accomplished, the software will automatically organize your transactions, including buying, selling, trading, and even receiving cryptocurrency payments.
Based on the local legal requirements of the country, it determines what you need to pay tax on and what you don’t. It divides gains and losses accordingly. To file your tax, you can either have this information automatically filled in, or you can manually fill it in.
Also included in the software are IRS forms that can be filled out with the provided information and filed with the IRS. In addition to providing you with information about the general crypto market, some crypto tax software, such as Cointracker, also provides you with live cryptocurrency prices.
Best Crypto Tax Software
If you recall the many crypto transactions you were able to conduct from home during the pandemic lockdown of 2021, it may seem overwhelming, but rest assured that enterprising tax experts have developed crypto tax software to help you stay organized and compliant with IRS requirements.
There are many options in crypto tax software, but Koinly is perhaps the most well-known. It has an easy-to-use interface and is a great choice for beginners. In addition to importing all your data and viewing your crypto capital gains and income, you can purchase a $49-per-year subscription to get a complete report that you can give to your tax preparer or use for your own use. With over 600 integrations with crypto exchanges and wallets, it is the most comprehensive solution for blockchains.
Regardless of where you live, Koinly can help you generate your crypto tax reports. Every country in between from the United States to Scandinavia to Japan.”
Pricing for Koinly is as follows:
- Annually free: $0
- Newbies: $49 per year
- Hodler: $99 per tax year
- Trader: $179 per tax year
- Pro: $279 per tax year
The CryptoTrader plan costs $49 per year, the same as Koinly’s. With CoinLedger, you can export your data to your tax software and support over 350 exchanges. Money back guarantee is available for 14 days. The cryptocurrency tax software built by CryptoTrader.Tax/CoinLedge “saves you time and maximizes your refund.”
- Hobbyist: $49
- Day Trader: $99
- High Volume: $199
- Unlimited: $299
Just slightly more expensive, TaxBit charges $50 per year for unlimited transactions as part of its basic service. Exchanges of all types are supported. In order to provide enterprises, consumers and governments with a trusted platform that unifies digital asset tax and accounting, TaxBit uses its advanced platform.
- Basic: $50 per year
- Prus: $175 per year
- Pro: $500 per year
What are the tax implications of cryptocurrency?
Despite the U.S. government’s announcement on cryptocurrency regulation, the rules aren’t totally clear. An Executive Order examining the government’s role in regulating the industry was signed by President Biden on March 9, 2022.
IRS Notice 2014-21 – the most authoritative guidance on crypto taxation – defines crypto as a digital asset that should be valued in U.S. dollars when sold. The IRS Notice 2014-21 does not specifically classify NFTs as digital assets, and some recent guidance may indicate that they are subject to the 28% tax rate because they are collectibles.
Airdrops, crypto-to-crypto swaps (including NFTs) and staking, all of which are taxable events within the crypto ecosystem, do not involve converting crypto to fiat.
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