From prolific investors to internet-savvy money-makers, more of us are starting to realize the potential of cryptocurrency and how investing in the crypto market can turn a profit.
However, with earnings in digital currency comes tax liabilities, and understanding crypto taxes is far more complex than it may seem at first glance.
A way to help you do your yearly crypto taxes is to use crypto tax software. This software automates the process for you, saving you time and eliminating any chance of human error and oversight.
Here, you’ll find five of the best crypto tax tools out there right now, as well as a guide outlining everything you should look for in crypto tax software.
- 1 How Is Cryptocurrency Taxed?
- 2 Koinly
- 3 Taxbit
- 4 ZenLedger
- 5 Turbotax
- 6 Cointracking
- 7 Accointing
- 8 Buyer’s Guide
- 9 Frequently Asked Questions
How Is Cryptocurrency Taxed?
In the US, the IRS considers cryptocurrency as property rather than a currency for taxation purposes.
This means that the taxes on your cryptocurrency would work similarly to the taxation on your stocks, gold, or other assets you may have.
Taxes need to be paid when you receive mined cryptocurrencies, sell crypto for cash, receive crypto as a reward, receive your wages in cryptocurrency from your employer, use tokens to buy cryptocurrency, or pay for goods and services using crypto.
For cryptocurrency transactions, the IRS usually charges between 10% and 20% in tax.
Bear in mind that you don’t need to pay taxes when transferring digital currency between wallets, donating crypto to a tax-exempt charity, or holding crypto after buying it with cash.
One of the most popular crypto tax software out there, Koinly specializes in super-fast tax calculation. It allows you to get your crypto tax done in under 20 minutes and gives you a detailed report after.
It also offers tips and tricks on reducing your digital asset taxes for the next financial year.
Connecting your transaction to a Koinly account is also very easy. You can upload a .csv file or use its API to connect your investment accounts, allowing Koinly to directly import all the data it needs. Its versatility means it supports over 300 exchanges and wallets.
- Super-fast and efficient – This software does your crypto taxes in just 20 minutes and automatically detects transactions made between your own accounts to exclude them from your reports. It’s simple to set up and allows you to easily import and export data.
- 100% accurate – Koinly guarantees that your tax reports will pass every audit. It has a double-entry ledger system that keeps track of every transaction you make, simplifying error tracking and future debugging.
- Offers tax-reducing tips – Its informative dashboard shows your profit and loss for the financial year, as well as growth, ROI, and current holdings. Along with their specific advice for your taxes, you can lower your crypto tax bill for the next financial year.
- Service payment – Koinly doesn’t accept cryptocurrency as payment for their tax calculation services, so you would have to subscribe with cash payments.
Described as a pioneer in the crypto tax software market, Taxbit caters to all your taxing and financial needs regarding your cryptocurrency.
Its capabilities mean it can cater to any kind of digital asset on any scale, from large enterprises to individuals.
This software guarantees the best results with its SOC 2 certification, meaning that your data is 100% safe from any malicious cyber attacks.
It’s also designed by highly qualified CPAs and tax attorneys so you know you’re getting the best quality crypto tax software.
- Proven record of expertise – This software is used by some of the largest government organizations and is trusted among huge industries. It doesn’t use bots either – all processes are carried out by real tax experts, experts with the same knowledge as those who created this software.
- Data security – It has certification that guarantees data security, keeping your digital assets safe.
- Flexibility – Taxbit offers separate features to its clients to look after specific needs, so it can be used for individuals and enterprises. It’s also compatible with every type of digital asset, so you won’t have to worry about whether or not your different cryptocurrencies can be managed.
- Limited auto-syncing – Taxbit requires you to manually input data as it does not directly connect to your investment accounts.
ZenLedger has been revered by experts as one of the best crypto tax software available. It allows you to track your transactions, see your profit and loss, and get the best returns on your taxes.
Furthermore, it accurately files your taxes and prevents overpayment, helping you get the best result.
Designed to be fast and easy to use, ZenLedger lets you import your transaction history and review your data every step of the way, along with brilliant customer support to help you handle your crypto taxes.
It is compatible with over 400 exchanges, so you can file your taxes no matter what digital currency you’ve invested in.
- User-friendly – ZenLedger’s interface is easy to use and clearly shows you everything you need to know about your profits and losses in its detailed reports. You can keep track of all your transactions in one place.
- Secure – It uses two-factor authentication during the login process to keep your data safe and your transactions private.
- Customer support – ZenLedger offers amazing customer support from tax experts that’s available 7 days a week.
- US exclusive – This software can only be used in the US for local tax forms.
This easy-to-use crypto tax software is one of the most widely used tax tools, for both digital currencies and cash transactions.
Turbotax offers many planning choices for your taxes and is compatible with various devices.
Turbotax offers several online resources to help you get your tax bill in order, such as checklists and a tax refund calculator to give you an estimate of what you’re owed.
It also offers the option to upgrade, depending on the support you need to manage your crypto tax.
- Extensive virtual support – This software provides plenty of resources and support to help you understand your crypto taxes. You can speak to a tax expert who will ask you simple questions so Turbotax can tailor the experience to your needs.
- Easy to use – Turbotax is known as one of the most easy-to-use tax software on the market, with simple options for importing and exporting data, as well as a user-friendly interface.
- Detail-oriented – This software covers a range of tax topics in great detail, serving multiple functions so that you can use it for any of your tax needs beyond cryptocurrency.
- Pricing – Turbotax can be expensive for more complicated tax filing, and their free plan can only support simple tax returns.
Cointracking not only helps you file your crypto tax, but it also acts as a financial advice service that tracks your profits and losses, finds potential gains, and observes the value of your cryptocurrency.
This software is widely used and has made a name for itself for being reliable and professional.
Cointracking can also be used outside of the US, so you can file your crypto taxes wherever you are. This makes this software one of the largest in the industry.
This software is also extremely safe and protects your data. It has two-factor authentication along with data and API encryption, keeping your assets and transactions private and confidential.
- Multi-purpose and customizable – This software helps you make the most out of your crypto investments by keeping track of crypto market fluctuations and giving advice on potential gains you could make. You can customize your reports to see every detail you want to see.
- International – Cointracking can be used in over 100 countries, so you can use this software wherever you are. This feature is especially useful for those who travel often.
- High security – This software is very secure with multiple layers of protection that safeguard your digital assets.
- Not mobile-friendly – This software is currently not optimized for smartphone use, so it has to be accessed on a computer.
Accointing is crypto tax software that is multifaceted and is capable of handling all of your crypto tax needs. It offers a set of tools to help you straightforwardly manage your crypto taxes.
This software supports over 300 exchanges and can connect to your crypto wallet for easy automation of your tax reports.
It seamlessly imports and exports data and tracks your transaction history, creating detailed reports of your profits and losses in your own personal crypto portfolio.
- Personalized – This software provides you with detailed reports and a crypto portfolio so you can see how your cryptocurrency is performing over time.
- Flexible – Accointing is compatible with over 7,500 cryptocurrencies, allowing you to do your crypto tax in one convenient place, and allowing you to invest in different cryptocurrencies in the future.
- Compatible with mobile devices – You can keep track of your taxes on the go with Accointing’s program which is optimized for both mobile and desktop.
- IRS forms – This software doesn’t provide pre-filled IRS forms, so you have to fill them out manually.
Since 2021, cryptocurrency investment has gained impressive momentum as more of us have started buying into digital access, like Bitcoin.
When it comes to keeping on top of your crypto tax and understanding the details of your crypto tax reports, there are a few things you should consider when choosing the right crypto tax software for you.
The best crypto tax software should be able to support all the popular cryptocurrencies and integrate effortlessly with them.
Flexible software will allow you to invest in multiple currencies and calculate tax for all of them.
If you’re using software that doesn’t support some of your digital currencies, you will have to use more than one program to be able to calculate your crypto tax bill. This is not ideal and will make the process much more difficult.
Even if you have only invested in one type of cryptocurrency, adaptable software will allow you to invest in more variations of digital assets in the future.
The IRS is meticulous when looking for discrepancies in your tax reports, and any errors or oversight can result in accusations of tax evasion and hefty penalties.
This is why it’s critical that the crypto tax software you choose has a good reputation and is reliable.
When looking for the right software for you, check user reviews and consult tax experts if possible.
Good crypto tax software will be detailed about what it can offer you and will show you the expertise of its staff.
Widely used software is often the most reliable, so look for insight into customer experience before you decide to commit to any software.
Those looking for crypto tax software want to avoid manually entering data to save them time and the trouble of calculating complex crypto taxes. It’s important to look for software that is automated.
The best software can automatically input crucial data, such as dates, the price of your crypto at the time of the transaction, the number of crypto assets, the type of crypto, and how long you’ve had the currency.
Automated software saves a lot of time and effort, especially for a professional trader that makes multiple transactions a day. It’s important because it prevents any errors made when manually inputting this data.
You should make sure the software you choose automatically inputs data when you make a transaction, and that it is compatible with your crypto wallet.
Completing the IRS Form 8949 is an arduous task, so most crypto tax software offers pre-filled paperwork to make things easier for you.
This means it’s important to find software that is 100% accurate so that you can fully rely on the pre-filled forms it produces for you.
Good crypto tax software that is accurate and trustworthy will provide you with all the paperwork you need with no error, such as your audit track and your gains and losses.
Be sure to find software that gives you all the correct information you need.
There are a few key features you should look for when browsing for crypto tax software. While all software comes with its own unique range of features, there are a few that you need to consider before committing to a crypto tax service.
The software should be capable of identifying transactions between your wallets, and then it should exclude them from your tax report to prevent overpayment.
It should also be able to identify duplicate transactions and remove them, saving you from having to check your transactions manually.
A good crypto tax software will also provide you with all the relevant information in one place. This feature simplifies the whole process and makes it easier for you to access any reports or details you might need in one place.
It’s also beneficial for this software to have real tax experts that double-check your reports, handle complex tasks, and offer you guidance where you might need it.
Overall, the software should provide you with an easy experience.
Finally, you should consider the different tiers and plans that the software offers. Free software is great for simple tax returns, however, pricing may vary depending on the complexity of your taxes and how frequently you make transactions.
Be sure to find the right plan for you and your financial needs.
Frequently Asked Questions
Does The IRS Know About My Cryptocurrency?
The IRS does track crypto transactions, such as Bitcoin and Ether. If you own cryptocurrency, you do need to pay taxes as they are considered property.
Do You Pay Taxes On Cryptocurrency Even If You Don’t Sell?
The act of buying crypto isn’t taxable, so you can own and hold cryptocurrency without paying taxes. However, once you sell the digital asset, it becomes taxable.
Are Crypto Losses Tax Deductible?
If you lose money due to the crypto market, you can deduct up to $3,000 from your taxable income, but you can only do so if your losses exceed your total gains for the financial year.
What Happens If I Don’t Report My Cryptocurrency On My Taxes?
You could face an audit from the IRS if you don’t report your taxable crypto. You could also incur interest, fines, or even tax evasion and fraud charges. It is important to declare your cryptocurrency when filing your taxes.