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A Complete Guide to Crypto Taxes & Crypto Tax Software

best crypto tax software for generating tax reports

Crypto tax software is relevant. to those who know to pay taxes on their crypto. Many newbies and oldies to crypto do not know they are supposed to pay taxes on their crypto gains. You have to pay taxes on your crypto gains if you are in the US. If you are not in the US, you should research what it is for your country so you don’t get on the wrong side of the law.

That said, this article will focus on how cryptocurrencies are taxed, how to report cryptocurrency taxes and crypto tax software that help.

How are Cryptocurrencies Taxed?

According to the Internal Revenue Service in the US, cryptocurrencies are treated as property for tax purposes. In the UK, you are liable to capital gain taxes, including gains from mining and airdrops.

What Gains are taxed?

To be clear, you only owe taxes on gains and investments, not on holdings. So, if you purchase and hold crypto, you do not owe taxes. To give a clearer picture, look at this example: if you buy Ether worth $1000 and a few months later, you sell it for $1200, you have to report that in your tax return and pay a percentage of tax on the gain of $200.

Every time you swap one coin for another currency, you are triggering disposal in capital gains tax based on the profits from that swap.

In the simplest of terms, the crypto taxes are on the difference between what it cost you to buy that crypto and how much you sold it for.

Beware that it’s not all gains that are taxed (depending on the country). For example, due to an annual capital gains tax exemption in the UK, gains up to £12,300 are not subject to capital gains tax. Don’t take my word for it, though; I am not a tax consultant or lawyer; visit one.

What are the Taxable Events?

Only buying and holding crypto doesn’t trigger tax reporting. However, these other events have a tax consequence:

  • Selling crypto for fiat
  • Trading crypto for another crypto
  • Using crypto to purchase products or services
  • Obtaining free crypto in any way, including airdrops and surveys
  • Obtaining crypto via investment strategies like mining and staking
  • Trading crypto after holding more than a year
  • Accepting salary in crypto

What is the Percentage I am to Pay?

Discuss with a tax consultant. If you would rather find out for yourself, read the tax laws. Crypto tax software also helps, and I will look at some of the best crypto tax software later in this article.

Losses certainly reduce your taxable income; they do in the US at least. However, you must report your losses and gains fully; if you only have losses, you must also report those. One benefit of doing that is that the losses incurred will reduce your entire taxable income, which means you pay less tax or get a bigger tax refund.

What is a Crypto Tax Software?

The interface of CoinTracker

As the name implies, a crypto tax software helps you manage your taxes from crypto proceeds. They can aggregate your entire portfolio and automatically generate tax reports to file your tax on your cryptocurrencies.

Crypto tax software aggregates all your cryptocurrency payments, transactions, trades, and all money coming and going as far as your crypto wallets are concerned. They can track fees, trade margins, profits from lending, mining and staking, borrowing, capital gains, standard exchanges, payments, donations, airdrops, and much more.

With the software, you can classify transactions as what they are, such as income from airdrops or as proceeds from staking. However, they do more than classification; you can also print tax reports from already calculated taxable events based on what you have tagged.

Most crypto tax software can also do other things, such as tax optimization to save you money and tax loss harvesting. Tax Loss Harvesting is strategically selling off assets, in this case, crypto assets, at a loss to reduce what is taxable.

Features to Look Out For When Considering a Crypto Tax Software

Not all crypto tax software is suitable for everyone. Here are key features to look out for when shopping for crypto tax software.

1. Integrates with Your Crypto Wallet

Generally, anyone should be able to see every transaction going on in or out of a crypto wallet through the public address, so your tax software should be able to integrate with your wallet. 

However, some might not integrate with some wallets, especially accounts on centralized exchanges like Binance. As a result, you need to confirm that the software supports all exchanges and wallets that you use. 

If you find one that integrates with all but one of your wallets, but you love its UI and want to use it, check for a CSV import feature and ensure that your wallet has a CSV export feature. Alternatively, you can enter your transactions manually.

2. Supports Your Country

Most crypto tax software supports most counties in the United States. That’s great, but you might not have the necessary support if you are not in the US. Regardless of where you are located, confirm that the apps you are considering support your country so that your tax reports are generated based on your country’s tax rules.

3. Supports Your Tax Method

In the US, tax agencies require that you use a consistent accounting method each year. Some of the accounting methods are First-In, First-Out (FIFO), Last in, first out (LIFO), Average Cost (AVCO), and Adjusted Cost Base (ACB). So, check to see if the crypto tax software supports the method you use or need.

4. Integrates With Your Accounting Software

It will be great to have your crypto tax software integrated with your regular tax and account software so you can analyze your total monetary assets from one dashboard. This is not a dealbreaker for several people, but it makes life easier. Some crypto apps integrate with TurboTax and similar applications.

Best Crypto Tax Softwares

1. ZenLedger

a screenshot of the ZenLedger crypto tax software website

ZenLedger simplifies the process of crypto tax filing. It integrates with over 400 exchanges and over 30 DeFi protocols, but it only supports tax filing in the USA. While people in other countries can still use the app to calculate their taxes, they can’t get the direct support for tax laws that users in the USA get.

ZenLedger offers a free plan which is enough for anyone that does less than 25 transactions per year and doesn’t interact with or do DeFi, Staking, and Margin Trading. Its premium plans are based on the number of transactions you do per year and access to support for DeFi, staking, and crypto trading. It also offers professional plans for those that want ZenLedger to file taxes for them.

Another awesome feature that the platform has is tax loss harvesting to provide tax-saving opportunities. Furthermore, there is support for accounting methods that include FIFO and LIFO. Also, it integrates with TurboTax, a widely used platform for filing taxes online easily.

ZenLedger has on-demand customer support from 9 am to 9 pm EST, seven days a week via email, phone, and live chat.

2. CoinTracker

a screenshot of the CoinTracker crypto tax software website

CoinTracker is better than ZenLedger in terms of the number of countries it supports; it supports the US, UK, Canada, Australia and provides partial support for every other country. CoinTracker syncs with over 300 exchanges and wallets, including the Ledger hardware wallet and Coinbase.

Like ZenLedger, CoinTracker can track DeFi and margin trading. It supports FIFO, LIFO, HIFO, and ACB. It doesn’t sync directly with TurboTax, but it has features for exporting so you can export your data to TurboTax and TaxAct.

CoinTracker provides only email support to the regular plans; you only get better support if you take the unlimited plans that come at a custom price. Also, it offers tax loss harvesting under a different product called Crypto Portfolio Assistant. Nevertheless, it’s a great app, especially for those outside the United States.

3. Accointing

a screenshot of the Accointing crypto tax software website

Accointing is a top crypto tax software. It can generate reports according to the tax laws of the United States, Germany, Austria, Switzerland and the United Kingdom. Users outside these countries can use the “general” report, which still provides all relevant tax information.

This software supports over 300 wallets and exchanges. In addition, users get a personalized dashboard with insightful graphics.

Accointing’s pricing is just like its counterparts in terms of having a free plan and premium plans that go higher primarily based on the number of transactions you can have on each plan.

Unlike ZenLedger and CoinTracker, Accointing provides tax loss harvesting features on the free plan. It also offers personalized plans that come with other features.

Support is provided through a Telegram group, help center, and email. Free accounts don’t have access to email support, though.

4. CoinTracking

a screenshot of the CoinTracking tax software website

CoinTracking is another global leader in bitcoin and all crypto taxes. It supports fewer exchanges than the others that we have looked at – only 110+ exchanges and wallets – but it supports more countries.

CoinTracking provides reports based on the tax laws of over 100 countries, including Canada, the United States, Greenland, most of Europe, Australia, South Africa, India and a few other Asian countries.

It supports 13 tax methods, including FIFO, LIFO, and AVCO. One good thing with CoinTracking is that it can connect you to CPAs to solve any tax issue you have or provide assistance with your tax reports, even as it generates reports for you automatically. It syncs with TurboTax as well.

Like the others, CoinTracking offers a free plan. Its free plans allow up to 200 transactions uploaded via CSV; only the paid plans allow automatic sync with your crypto wallet. Also, the free plan is limited to 100 entries in your tax reports.

5. TokenTax

a screenshot of the TokenTax tax website

TokenTax claims to connect to every cryptocurrency exchange, but what it does is no different from what most other top crypto tax software do. TokenTax allows automatic integration with some exchanges and has the CSV import feature so you can import your transactions from other exchanges manually.

According to its website, it supports any country, including the UK, Canada, Australia, Japan, Sweden, and South Africa.

Unlike the others we have seen up till this point, TokenTax does not offer a free plan; there are four premium plans. The first plan is limited in terms of the exchanges that connect automatically. For example, the first plan is only limited to Coinbase, Coinbase Pro, and Binance.

The top plans provide several benefits. For example, TokenTax will help clients in the VIP plan to file an extension in the case of data loss.

TokenTax integrates with TurboTax, offers tax loss harvesting, supports margin trading, mining, DeFi transactions, the regular tax reports and IRS Report of Foreign Bank and Financial Accounts (FBAR).

How to Report Cryptocurrency Taxes

You should report your capital gains and losses in the proper forms. Describe the asset you sold, the date you acquired it, the date you traded it, the proceeds from that trade, your cost basis in the asset (in fiat), and the gain or loss realized from it.

In the US, you will need to include the above in IRS Form 8949 and Schedule D (Form 1040 or 1040-SR). Any crypto tax software that supports your country will generate the appropriate tax forms for you.

Concerns or Questions?

That’s it for filing and reporting crypto taxes. I looked at the best crypto tax software on the market as well.

Have you filed your crypto taxes before? Share with us how that went in the comments. Do you have any questions? Let me know in the comments.

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