It is the duty of every citizen to pay taxes to the government on all income generated by their various businesses. The tax also extends to income generated by financial markets.
As a relatively newer aspect of financial markets, the world of cryptocurrencies has seen less regulation compared to the stock or foreign exchange markets. However, more and more government authorities are becoming interested in introducing more regulations in the world of cryptocurrencies.
As an example, the IRS (the US tax enforcement agency) classifies cryptoassets as property and requires traders to report every crypto transaction on their tax returns. Failure to do so will result in severe penalties against the trader. The same is true for many countries that have gradually implemented crypto regulations.
To be at peace with the authorities, it would be best to learn how to calculate and pay your taxes in both the CeFi and DeFi worlds. This article will discuss how you can pay your taxes on Metamask, the world’s leading decentralised exchange by market volume.
WHAT IS METAMASK?
Metamask was created in 2016 by Aaron Davis and ConsenSys. It runs on the Ethereum blockchain and is one of the most popular DeFi exchanges. It grants users access to various decentralised applications to interact with different crypto ecosystems in the decentralised world.
It originally started as a browser extension, but is now more popular as a wallet compatible with Android and iOS operating systems. Being a wallet, it is used to store mainly Ethereum, ERC-721 and ERC-20 tokens.
Despite being hosted on the Ethereum blockchain, which has been criticised for its high fees, the wallet has grown massively due to the rise of DeFi last year. It went from a measly 545,080 users in July 2020 to a gargantuan 10,374,279 by the end of August 2021. It is therefore impossible to talk about the major decentralised exchanges without mentioning Metamask.
HOW TO DO YOUR METAMASK TAXES?
Metamask itself does not have a built-in tax calculator option, nor does it have a button on the website where you can download your entire transaction history in CSV form. However, there are ways around that.
It is important to note that you will need a third party application to help you complete the tax calculation, compilation and reporting process. Those applications will be addressed in due course in this article. For now, let me explain how you can get your transaction history from Metamask (which you will need with those third party applications).
THE PROCESS IS AS FOLLOWS:
Since Metamask handles Erc-20 tokens (but also supports other blockchains such as BSC, Polygon, Fantom, etc.), navigate to Etherscan (the blockchain explorer for Ethereum transactions or explorers for other blockchains that MM supports) and paste your wallet address in the search column.
A page appears showing all transactions handled on that wallet address. Scroll past those transactions to the bottom of the page.
Click on ‘Download CSV export’ and enter the parameters as required.
Click download and you will get a statement containing all your transactions during the specified period.
This downloaded export will be used by third party applications to process your tax reports.
THE BEST TAX SOFTWARE TO CALCULATE TAX ON YOUR METAMASK TRANSACTIONS
This is an online crypto tax calculator that was founded in 2018 by Robin Singh. The platform encapsulates all aspects of your crypto tax life as it monitors all transactions and automatically generates locally and internationally approved tax reports. In addition to standard crypto-to-crypto transactions, Koinly also helps you calculate the amount of your taxes payable on DeFi activities such as gambling, mining, lending and airdrops.
The platform provides comprehensive tax analysis, integrating over six thousand blockchains on more than 350 exchanges and 75 wallets. It is also available in more than twenty countries around the world and is looking to increase the number of countries as time goes on.
Koinly has a free plan, with access to its services up to a maximum of 10,000 transactions. Anything above that, you would have to subscribe to their paid plans which range from $49 to $279 per year.
Finally, Koinly has a pretty impressive support team consisting of a blog to keep readers informed of updates on the platform. This FAQ section addresses most of the common questions users have about the services on the platform, a live chat section on the website, an email address and social media support.
Like Koinly, cryptotrader.tax is a software that helps automate the calculation and reporting of taxes accrued on crypto transactions. The tax report thus generated is professional and can be provided to tax enforcement agencies. It has integrations with major exchanges and provides the necessary education for users on what crypto tax reporting entails and how it concerns them.
Founded in 2017, Cryptotrader.tax is based in the United States with another registered office in Spain. Unlike Koinly software, Cryptotrader.tax does not have a free plan. However, it does have a 14-day money back guarantee on its four paid plans.
The four plans are the Hobbyist plan, which goes for $49 per year and gives you tax reporting for up to 100 trades; the Day trader plan, which costs $99 per year and gives you tax reporting for up to 1,500 trades, the High Volume Trader plan which costs $199 per year and gives you tax reporting for up to 5,000 trades, and the Unlimited plan which costs $299 per year and gives you access to unlimited tax reporting.
Zenledger is a tax software created in 2017 that is most popular among DeFi cryptocurrency traders, as it has specific resources aimed at that niche. It is built primarily for residents of the United States of America and provides tax forms that are locally compliant with the US. Although cryptocurrency traders from other countries can use Zenledger’s services, US traders benefit the most.
Zenledger has four plans, including a free plan that allows users to access its services for up to 25 transactions in a tax year. Apart from that, it has a starter plan, which goes for $449 and allows up to 100 transactions, a premium plan, which costs $119 and allows up to 5,000 transactions, and a run plan, which allows unlimited transactions for $399.
Finally, Zenledger supports around 40 blockchains and 20 DeFi projects on more than 400 exchanges. It also puts more emphasis on API integrations to automatically download transaction history from various exchanges.
Cointracking does just that: it tracks your coins. It is a crypto tax software created in 2013 that excels in calculating and exporting your crypto taxes from various exchanges. In addition to that, it has a wallet tracking feature through which professional cryptocurrency traders or holders can track their crypto assets in real time across all their wallets and exchanges.
Being one of the oldest and richest crypto tax tools, Cointracking can import data from hundreds of exchanges using API and CSV files. It also provides professional help in all the countries it supports and provides full charting software for more than 10,000 coins,
With regard to pricing, there are four different plans on the Cointracking platform. They are as follows:
A free plan that provides access to tax reports for up to 200 transactions.
A pro plan which costs $10.99 and gives the user access to fiscal reports for up to 3,500 transactions
An expert plan ranging from $16.99 for 20,000 transactions to $27.49 for 100,000 transactions.
An unlimited plan that goes for $54.99 and provides more personalised support.
Coinpanda is a popular crypto tax platform that prides itself on being able to calculate your tax payments due in less than 20 minutes. It launched in 2018 and has since grown to support thousands of cryptocurrencies across more than 350 wallets and exchanges.
It has several interesting features, including a capital gains reporting function that allows you to calculate and report all your gains (or losses) accurately. It also calculates taxes on various Defi activities such as mining, staking, forks, airdrops, etc.
On top of all this, it has a portfolio tracker that includes some other tools such as a search tool that allows you to find information on specific transactions; a tax preview tool that warns you if you are about to make a costly tax mistake; a tax loss harvesting tool that finds ways to reduce the amount of tax you are obliged to pay, among others.
It is the crypto tax software with the widest range of paid plans. It starts from the free plan, which offers tax reports for 25 transactions, to Satoshi’s increased limit plan, which costs $941 and offers support for 100,000 transactions along with some additional benefits.
FREQUENTLY ASKED QUESTIONS
BITCOIN TRANSFER BETWEEN WALLETS IS NOT TAXABLE. CAN I ALSO DEDUCT TRANSACTION FEES ❓.
Under U.S. tax laws, you must pay taxes on any capital gains you make on crypto transactions. However, since you are transferring the same amount of crypto from one wallet to another, you have not made a profit and therefore will not be charged. However, you will still incur network fees. Network fees are not taxable and are considered investment expenses on your tax return.
IS THE TRANSFER OF BITCOIN BETWEEN WALLETS TAXABLE IF YOUR CRYPTOCURRENCY GAINS IN PRICE (USD) WHILE IT IS HELD❓.
As long as you don’t sell your bitcoin, you don’t have to pay tax on it when you move it from one wallet to another, even if it increases in value over time. This is because you still hold the same unit of Bitcoin.
For example, let’s say you bought a BTC at $10,000 and held it for six months, during which time the price increased to $50,000. It is true that you have made a 400% profit. But it is also true that you still have the same amount of BTC you started with six months ago. Therefore, as long as you don’t sell, you can’t be taxed on it.
DO YOU PAY TAX WHEN YOU TRANSFER YOUR CRYPTO BETWEEN WALLETS ❓.
The simple answer is no. This is because you have not made any capital gain, you simply changed the location of the same asset.
HOW DO I CHECK THAT MY Metamask IMPORT IS ACCURATE?❓
The best way to confirm this is to manually check it against your transaction log. It may be more cumbersome, but it’s better in the long run. To make it easier for you, you can follow the guide below:
1. check if the import contains all the wallets, exchanges and blockchains you have interacted with.
2. Check if there are large transactions that are not subject to tax, such as internal transfers.
3. Check if the correct tags are attached for withdrawals and deposits. Tags include gifts, airdrops, forks, pools, etc.
4. Preview one more time.
DOES METAMASK REPORT TO IRS, HMRC, ATO AND OTHER TAX AUTHORITIES?❓
Since Metamask is a DeFi wallet, it does not report to tax authorities such as Coinbase or Binance. However, when you use the wallet to send coins to other wallets or exchanges, they can share the transaction information with the necessary authorities.
HOW DO I GET CSV FROM METAMASK?❓
The process is as follows:
Since Metamask handles Erc-20 tokens, navigate to Etherscan, the blockchain explorer for Ethereum transactions, and paste your wallet address into the search column.
A page appears showing all transactions handled at that wallet address. Scroll past those transactions to the bottom of the page.
Click on ‘Download CSV export’ and enter the parameters as required. Click download and you will get a statement containing all your transactions for the specified period.
HOW DO I DOWNLOAD METAMASK TRADE HISTORY?❓
Unlock your Metamask account, click on the Account icon, then ‘Settings’, then ‘Advanced’. Then click on ‘Download status records’.
DO YOU NEED TO PAY TAX ON METAMASK?❓
As a DeFi wallet, Metamask itself does not offer tax payment options. However, you can export your transaction statements and use third-party cryptographic tax software to calculate and report your axes.