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Crypto Tax Software: What It Is and How It Works

The main reason why you will find that crypto tax software is a necessity is that the rules and regulations related to the cryptocurrency industry are still quite complicated. Even when you go outside the realm of taxation, there’s a huge amount of uncertainty about how all the technology around bitcoin and other crypto assets will be regulated.

In terms of taxation, many jurisdictions are still trying to figure out how exactly they will treat the gains that cryptocurrency users enjoy from their activities in this new emerging market.

Anyone who sells cryptocurrencies, even if they have received them as payment rather than buying them as speculative investments, will likely face a taxable event because of that sale.

In addition, taxable events also occur when you simply use a cryptocurrency to buy something online or in a physical retail store. Obviously, anyone who is all-in about the cryptocurrency revolution will find themselves with a lot of tax headaches if they are not automating all this task with software that is meant to simplify all these obligations.

Bitcoin tax software is able to automatically tax all your crypto tax issues, which can help you avoid manually doing hours of your crypto accounting.

Best Overall Crypto Tax Software: Koinly

The best example of the level of simplicity that quality cryptographic software can bring to your life is Koinly.io.

You can easily import all the trades you have made in the last year via API keys or CSV files from all your exchange accounts. In addition, you can also track changes to public addresses associated with your crypto holdings that are held most privately.

Koinly also has the ability to track earnings related to new forms of crypto finance such as picketing, lending, and lending. This crypto taxation software also includes a fully functional wallet tracker, meaning you can track your overall gains or losses throughout the year. You can even track expected capital gains taxes over time rather than getting a surprise once tax season roles are around.

Koinly

  • Leading tax software for cryptocurrency users
  • Support for all major crypto exchanges and wallets
  • Optional free version
  • Available in a large number of countries

SUPPORTED EXCHANGES 350+
SUPPORTED COUNTRIES USA, UK, Canada and others

An alternative option of fiscal cryptographic software: CryptoTrader.Tax

While Koinly is generally considered the gold standard of tax crypto software, CryptoTrader.Tax can also be seen as a credible alternative.

Just like Koinly, you are able to import your trades from virtually any crypto exchange, but CryptoTrader.Tax also has additional features focused on crypto income, making it a preferred solution for many crypto users who also work in the bitcoin and cryptocurrency industry.

CryptoTrader.Tax can also help you manage the cryptocurrencies you have obtained through mining, staking, gifts, airdrops, and forks. The platform’s tax loss collection feature also allows you to offset some of the taxes you may have to pay in a given tax year.

CryptoTrader.Tax

  • Free version available
  • 100% money back guarantee
  • Integrated with TurboTax for greater simplicity
  • Tools to automate connections to exchanges

SUPPORTED COUNTRIES USA, UK, Canada and others
SUPPORTED EXCHANGES 2000+

Best Fiscal Budget Software: Bear.tax

You’ll quickly notice that most crypto tax software falls into very familiar pricing territory. There’s generally a free version with very limited features, so there are levels that usually start at around $50 and can go up to several thousand dollars for incredibly intricate tax situations.

Bear.tax reverses this trend by offering a $10 per year version that offers a host of features. You are only allowed 20 transactions but you have access to the rest of Bear.tax’s features at that price. Bear.tax also offers a discount to users who purchase a two-year tax accounting fee.

BearTax

Property

  • One of the cheapest tax options for cryptocurrencies
  • Only available in a handful of markets
  • Supports traditional tax software
  • Ability to communicate with a real tax professional

AVAILABLE COUNTRIES: Australia, Canada, India, United States
SUPPORTED EXCHANGES: 50+

Competitors: TaxBit, TokenTax, CoinTracker

Of course, there are also many other cryptographic software solutions out there. And some of the smaller players on the market tend to have unique, niche features that help them stand out from the rest of the package.

TaxBit is a popular alternative to other major options in the crypto tax software market due to their focus on business solutions. While they also offer the same form of automation for people found with other offerings, TaxBit can also help crypto companies manage tax automation for their end users. In addition, TaxBit is funded by well-known companies in the crypto space such as Winklevoss Capital and Coinbase Ventures.

TokenTax is another option that is trying to carve out its own space in the crypto tax software industry. With this platform, you focus on tokens and decentralized finance (DeFi) platforms. While other platforms may only have support for centralized exchanges, TokenTax is able to track all your activities on DeFi apps like 1inch and Curve Finance. If you are operating at the forefront of DeFi, this will be the best crypto tax solution for you.

One last competitor to consider when it comes to bitcoin tax software is CoinTracker. While there aren’t many unique features or offerings from this particular option, the fact is that they may have the simplest and most intuitive user interface among all the options on the market today. If you’re someone who doesn’t need extra bells and whistles, this might be the easiest way to manage your crypto fees every year.

TaxBit Overview

  • Useful for both consumers and institutions
  • A one-stop-shop for cryptocurrency accounting
  • Very reputable company with the backing of the biggest names in crypto
  • Money-back guarantee on all software

COST LEVELS: Free trial, $50 Basic, $175 Plus, $500 Pro
EXCHANGES SUPPORTED Kraken, Gemini, Coinbase, and numerous others

TokenTax Overview

  • Global crypto tax software endorsed by many industry figures
  • Full range of features, including tax loss collection, margin trading, and more
  • Can work as standalone tax software
  • Full team of accountants to assist you

COST LEVELS $65 Basic, $199 Premium, $2500 VIP
EXCHANGES SUPPORTED Binance, Coinbase, Kraken, Uniswap, and numerous others

ZenLedger

  • Tax software designed for extended users of DeFi (decentralized finance)
  • Integrates with traditional tax software
  • Free version available

SUPPORTED EXCHANGES: 400+ (Binance, Bittrex, Coinbase, Gemini, ect.)
SUPPORTED COUNTRIES: USA

What Is Crypto Tax Software?

Crypto tax software is any type of computer program that makes it easy for you to manage the taxes associated with your activity in the cryptocurrency market.

In many cases, this type of software will also include a full crypto wallet tracker, which allows you to get a bird’s-eye view of all your crypto holdings on many different exchanges and wallets in one centralized interface.

Cryptocurrency traders are able to save hours of time by using crypto tax software because it automates the process of learning the local crypto tax code, keeping up with any changes in the law, keeping track of all crypto trades made regularly, and filing taxes every year.

Do I have to pay taxes on Bitcoin?

Capital gains tax laws can be quite complex, and there is no rule that can be followed in every country in the world. These types of fees usually vary depending on how long an asset is held, and you’ll usually find that you’re able to access much lower rates (even 0%) by holding bitcoins and other crypto assets in the long term.

While you will generally have to pay capital gains taxes on cryptocurrency-related earnings in the vast majority of countries around the world, there are some exceptions to this rule. Here are some examples of places where you can pay 0% capital gains tax on cryptocurrency sales:

  • Belarus
  • Bermuda
  • Germany
  • Hong Kong
  • Malaysia
  • Malta
  • Portugal
  • Singapore
  • Slovenia
  • Switzerland

It should be remembered that many of these countries have requirements in terms of how long it takes to hold a crypto asset before you can benefit from the 0% capital gains tax rate. Other countries, such as Austria, do not tax cryptocurrencies if you fall into a certain income bracket.

In addition, regulation of cryptocurrencies in general is in a state of flux, which means that the laws on these tax rates could end up changing rather quickly. Finally, it should also be noted that, in many countries, the use of bitcoin and other cryptocurrencies to pay for a good or service is considered a sale of that crypto asset, which means that it is also a taxable event.

If you have concerns about what you owe, be sure to check with an accountant in your jurisdiction.

How does Crypto Tax software work?

Crypto tax software works by automating the cryptocurrency-related tax process as much as possible. This means that the best crypto tax solution on the market should make sure that the user has to do as little work as possible when it comes to filing their cryptocurrency-related taxes.

In terms of specific forms of automation, this type of software is able to understand the current fees related to cryptocurrencies in your jurisdiction, automatically import your crypto operations from exchanges and wallets, and help you present your fees as easily as possible.

What features should I look for in tax software?

Since the whole point of any type of tax software is to automate the tax filing process, your main priority when looking at crypto tax software should be to find a solution that requires the least amount of input from you to get your taxes stored. Different types of tax software tend to focus on their own niches, so there are some specific features you might want to look for when it comes to crypto fees in particular.

Seamless imports

The most important feature of crypto tax software is the ability to automatically import your wallet and trading history from all your different wallets and exchange accounts. That’s really 99% of the work when it comes to crypto fees, so automating the process can save you extra hours of work.

Different tax software can support different exchanges and wallets, for example, some software does not yet support various DeFi applications, so you need to make sure that the platforms you use are supported before choosing tax software.

Tax collection features

In addition to exchange and wallet support, you may also want to consider tax loss collection as an indispensable feature of bitcoin tax software. The collection of tax losses is a strategy that is often used in the investment world that aims to reduce the overall taxes on capital gains due at the end of the year. In particular, reporting losses on a particular crypto asset can also reduce income tax obligations. Some different cryptocurrency taxation software solutions include features to help you figure out if you should try to trigger a capital loss to lower taxes for a given year.

prices

Most (if not all) crypto taxing software tends to fall under a version of the following pricing structure:

  • Free version (limited transactions)
  • $50 (50-100 transactions)
  • $100 (100-1000 transactions)
  • $200+ (unlimited transactions)

Therefore, the amount you will pay often depends on how actively you trade cryptocurrency. If you buy cryptocurrency once or twice a year, you will easily get away with the cheapest level.

It’s important to note, however, that many functions in cryptocurrency, including transfers, picketing, mining, crypto rewards, and more count as transactions, so don’t be surprised if your transactions are higher than expected.

One nice thing about most tax software is that you actually have access to most of the software’s features and you won’t have to pay anything until you go export your actual documents to file taxes.

It’s worth doing some shopping to find the price that works best for you.

Customer Support

Taxes can be confusing, so it’s very helpful to have good customer support for tax software.

Unfortunately for many of the tax software companies the best customer support is built into the more expensive plans.

Many tax software suites can put you in touch with a real tax professional in real life to help you solve your problems, but this can be very expensive (potentially thousands of dollars).

Most of the time live chat or email support will suffice, however, and those are offered on most levels.

Is Crypto Tax software safe?

In general, crypto tax software is safe because it is not intended for trading or any other type of asset where your funds could potentially be at risk of theft or loss. When you add an exchange account or public crypto address to your crypto tax software, you’re doing so in a way that doesn’t put your money in the hands of third parties. Instead, crypto tax software is meant to simply be able to view your crypto activity.

That said, you still need to be on the lookout for malicious software. You should only stick to the tax crypto software we’ve reviewed and approved, as some apps will try to trick you into handing over sensitive information or potentially even placing malware on your computer. Also, you need to make sure that you configure your exchange API keys correctly, as they can also be used for trading via third-party apps. You should always make sure that you use an API key associated with your exchange account that only allows third-party apps to view your crypto operations rather than making trades or withdrawals on your behalf.

Is Crypto Tax software free?

There are different pricing models when it comes to crypto tax software. Some platforms will ask you to pay before you can file your taxes, while others will offer basic features for free and then try to sell you extra features that may be targeted at specific types of crypto exchanges.

In general, you can expect to get assistance with your taxes for free from a variety of different crypto tax solution providers. That said, you’ll get the highest level of automation and support if you’re willing to pay a little extra for your crypto tax services. You should always check what features are offered for free before choosing a crypto tax service if you’re not looking to pay extra for the help you can get from these platforms.

The history of paying taxes on cryptocurrencies

The first thing that needs to be said about the history of bitcoin and crypto taxes is that there has never been a time when these assets were not taxed at all. While the specific taxes involved with cryptocurrencies vary from country to country, it’s not like activities related to mining, trading, or spending bitcoin and other cryptocurrencies didn’t exist until various tax agencies started commenting on the topic.

Most governments will always try to collect taxes on any income earned by the citizenry, so the idea that they will ignore the early years of bitcoin when the crypto asset wasn’t really on the radar carries no weight.

The U.S. Internal Revenue Service (IRS) was the first major tax agency to comment on bitcoin and “virtual currencies” in 2014. At the time, the IRS believed that virtual currencies would be taxed as property. Fast forward to 2019, and the IRS had added a separate question to Form 1040 where the individual should clarify whether he has been involved in cryptocurrency-related activities in the past year.

The first bitcoin taxation software started appearing in 2013, when there was really just one crypto asset that everyone was paying attention to in the market. Around the same time, Coinbase and other major exchanges began automating much of the tax reporting process on behalf of their users.

Looking ahead, it may not be long before this type of tax automation is included directly in some cryptocurrency wallets. At this point, the fact that cryptocurrency spending has tax implications in many jurisdictions around the world is an important deterrent to this technology making it a traditional payment solution.

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