Which Crypto Tax Software Is Best? Pro Tips by a CPA

Maybe you are

• A taxpayer who is looking to get a definitive crypto tax record;
• A company that is looking to keep track of the supply;
• An accounting professional who is trying to solve an acquisition puzzle.

Well, worry no more because all you need is cryptocurrency tax software. But which crypto tax software is the best? 

In this article, we will go through all the best tax software on the planet to help you choose the golden solution. 

But before we go on and review all the great software, let's take a look at cryptocurrency tax regulations and how cryptos are taxed so that you can make a more informed decision. 

How Is Cryptocurrency Taxed?

The taste of making money trading cryptocurrencies can be delicious for a crypto investor. But behold! Tax calculations can turn all that sweetness bitter. 

Cryptocurrencies are taxed because they hold real value. You can make payments with your crypto assets just like traditional money. Many also hold them for investment purposes, as you would do with stocks. 

According to the International Revenue Service (IRS), your tax will be calculated from the day you buy a crypto asset. 

So, you need to know the exact date and price of your purchases. You should also know what tax rates and guidelines apply when exchanging or selling your assets.

Bitcoin Tax Regulations Basics

Let's start with the basics. 

The Internal Revenue Service is capable of keeping track of your Crypto assets. Thus, if you're asking, do I have to pay taxes on my Crypto gains? Do I need to worry about my crypto investment taxes if I don’t report them? Are they on the IRS's radar? 

Stop right there and ask no further. Any questions you may have that somehow involve evading paying or reporting gains to the IRS is a dead-end. 

The second point is, Cryptocurrency holdings are not taxable.

Tax liabilities may only arise when you exchange virtual currency for real money, products, or services. 

If you receive crypto or real currency at a price that exceeds your cost basis, then you will be liable for the difference - that is, the difference between your purchase price and the real-world value of the asset at the time you decided to sell it.

The tax burden on crypto can vary based on a variety of factors, even when exchanging one token for another. Let’s have a closer look at these factors.

Factors Affecting Investors' Tax Liability

It has become increasingly difficult for tax authorities to keep pace with digital assets' rapid growth. Consequently, there is no consensus between tax authorities on how to handle them.

For tax authorities, digital assets present a significant challenge. Not only because they bypass intermediaries but also because they’re different from traditional investments and are not subject to tax reporting the same way they are.

Of course, since Bitcoin’s introduction in 2009, agencies like the IRS have pretty much found their way around DeFi-based investments. In fact, the IRS recently received $80 billion to detect and prosecute crypto tax evaders.

So, it’s best to be up-to-date about the latest crypto tax regulations and not accidentally run afoul of evasion laws.

Capital Gains Explained

As previously mentioned, capital gains result from an asset's value going up. A sale of the asset typically results in these gains. 

It is common to associate capital gains with investments, for instance, stocks and mutual funds, which are subject to price fluctuations. However, they can also happen on any security or property whose price is higher than its original purchase price, AKA, the cost basis.

Disposal is the term used to describe a taxable event that occurs when an asset is transferred. The CGT is triggered at the time of disposal - when a profit is made.

You could be subject to CGT on crypto disposals in these situations in most countries, but not all:

• The sale of crypto for fiat money.
• A crypto-to-crypto trade.
• Purchasing goods and services with crypto
• Crypto gifts (subject to where you live).

Australia, Ireland, and the UK tax crypto gifts, but not those made to spouses and civil partners. The United States does not tax crypto gifts.

Duration of Holding

Losses and gains on cryptocurrency are taxed by the IRS. There are two types of gains based on how long you held the assets before trading or exchanging them.

Gain or loss on a short-term asset: An asset that is sold within one year of purchase. 

Gain or loss on a long-term asset: sale of an asset after a year of purchase and holding.

It is particularly crucial for regular traders to understand this distinction and include it in their investment plans. Others who may benefit from taking the opportunity to trade online must also remember this factor. 

The Role of DeFi in Crypto Taxations

It seems that with tax authorities penalizing crypto financiers around the world, it is vital to understand what DeFi is and what the tax implications of DeFi financial investments are. 

There is no doubt that digital assets' growth is driven by the fact that they can effectively sidestep existing financial systems. In case you have forgotten, the term DeFi means Decentralized Finance.

Essentially, this means that the transactions are recorded on separate online databases rather than on the books of traditional banks.

DeFi is not just an idea but an extended term for different economic applications created using blockchain innovation or cryptocurrency. DeFi methods are self-managing programs that can produce and perform detailed specifications.

How Exactly Does DeFi Help?

DeFi methods help address existing problems in the traditional economic market. 

For example, suppose someone wants to make a loan with a conventional financial institution. In that case, they usually need to provide identification, proof of income, proof of where they live, and various documents. 

A DeFi method, on the other hand, will automate this process in just a few clicks by simply transferring a title to the proposed method. 

The method identifies terms, issues, and regulations. It will sell the transaction if a party is unable to repay. This feature is only one of the many strategies that DeFi employs.

While tax authorities have yet to issue specific standards on DeFi tax liabilities, they have provided clear support for crypto taxes. 

As cryptocurrencies are considered property for taxation purposes, they constantly lose value in both income tax and resource gains tax. 

Crypto tax software solutions, like the ones mentioned below, calculate all crypto tax liabilities for traders and holders facing DeFi tax liabilities. 

Tax Tips by Pro CPAs

Remember that you will need to report even your smallest crypto activities to the IRS, which can be time-consuming (and stressful). 

Now is the time to start preparing for 2022 tax filings related to crypto. It's never a good idea to postpone trying to collect your tax liability, despite your usual approach.

Here are some pro tips by Lorenzo Tax for determining whether your crypto assets are taxed and how to calculate them.

• Tokens sold within 30 days of purchase will affect your gain calculation.
• You gain if an asset is worth more than you paid for it (its cost basis). 
• Calculate your gain by comparing it to the market value if the asset was free.
• The amount of taxable gain exceeding the annual tax-free allowance must be reported and paid as Capital Gains Tax.
• Calculate the gain for every transaction you make to determine if you have to pay Capital Gains Tax. 
• Capital Gains Tax must still be paid on the gain you make after receiving them.
• In calculating your gain, you can subtract some deductible costs, including a portion of the pooled costs of the token.
• It is also possible to deduct capital losses from your gain, but you must first report them to IRS.

Let's be honest. No one likes doing their taxes, the process is just hideously boring, and as if that’s not enough, those brutal calculations are also very tricky. 

However, consulting a crypto tax expert or using good tax software can make a huge difference.

So, if you have a growing cryptocurrency income, we suggest you choose a good tax software solution to keep track of everything you need to file taxes.

Top Crypto Tax Software Solutions

If you are wondering which crypto tax software is best? Here's what you need to know. Continue reading to get to the bottom of it.

#1 Koinly

Koinly simplifies tax preparation by calculating the tax due on your crypto exchanges. 

Results can be readily exported to other tax prep applications. Koinly customer evaluations paint a clear picture of the cryptocurrency tax software.

With the free plan, you can import all of your data and check your cryptocurrency capital gains and income, but a $49 annual membership gets you a comprehensive report that you can use or provide to your tax accountant. 

Koinly provides the broadest support for blockchains, along with over 600 integrations with crypto exchanges and wallets.

Features:

• Connections to 350+ crypto exchanges, 70+ wallets, and 14 blockchain addresses
• Automatic sync of data from any source
• transaction data export to other tax software such as TurboTax and TaxAct
• Portfolio tracking across wallets & accounts
• Real-time details of profit & loss and tax liabilities

Here are some pros and cons of using Koinly:

Pros:

• The paid plans are affordable
• Incorporates a large number of exchanges and wallets
• Files international tax returns

Cons:

• A tool that can harvest tax losses independently is not available
• There is no tax report included in the free version

#2 Cointracker

CoinTracker is among the best cryptocurrency tax program. 

By adding your first wallet or exchange, Cointracker enables you to begin monitoring your cryptocurrency portfolio, investment performance, and taxes. 

You can also export your cryptocurrency tax reports to TurboTax or TaxAct. 

Cointracker supports more than 8000 crypto assets and 300+ exchanges.

Features:

• Keeping track of cryptocurrency investments and taxes
• Calculating capital gains
• Viewing portfolio allocation, investment performance, and market value in real-time
• Saving thousands per year by tax-loss harvesting your portfolio
• Full cryptocurrency tax compliance
• Available on iOS and Android Mobile App

Pros:

• Tracking 8,000+ different cryptocurrencies
• Updating and syncing the most popular exchanges
• Unlimited crypto wallets
• Easily accessible mobile app

Cons:

• Limited access to high-end financial tools
• A stale interface

#3 Zenledger

ZenLedger was developed for cryptocurrency traders and tax experts who needed a solution to streamline the crypto tax accounting procedure (DeFi). 

To provide complete coverage for traders who conduct business in these volatile markets, ZenLedger integrates with a wide range of exchanges and cryptocurrency networks. 

This platform is particularly popular among businesses operating in the DeFi arena, as it provides highly automated support for these applications.

Features:

• Calculates crypto profits and losses using transaction history.
• Integrates with TurboTax.
• Reports on unified accounting and tax loss harvesting

Pros:

• Transaction-based fees
• Strong support for decentralized applications (for high-end users)

Cons:

• Expensive for entry-level plans with professional assistance 
• More expensive than competitors
• Internationally inaccessible

#4 Taxbit

One of the best tax preparation programs is Taxbit, which enables you to submit your taxes with assurance and accuracy. 

The user-friendly interface of this cryptocurrency tax software makes it easy to submit and file tax returns for both corporations and individuals electronically.

Features:

• Finding the most tax deductions and credits for your situation
• Providing free software and tax preparation services to simplify tax returns
• Offering tax return tools
• Providing an accurate return using the latest tax laws
• Tax experts file your tax return on your behalf and email you when it has been accepted.

Pros:

• A cheaper alternative to hiring a professional
• Easy to use 
• Handling your own tax return

Cons:

• An IRS Letter, Audit, Amendment, and Penalty can result from improper software usage 
• User input determines how good the software will work
• Overdeductions and/or missed deductions are possible
• Identifying unknown tax topics and questions on your own

#5 BitcoinTaxes

BitcoinTaxes is a trustworthy cryptocurrency tax program with various pricing plans, for you only to pay as much as you actually use it. 

The variety of features available is also pleasing.

To help you submit your taxes, BitcoinTaxes informs you of your capital gains and losses.

Additionally, it gives you support from a qualified crypto tax expert who can advise you on how to enter Bitcoin transactions.

Features:

• Determining capital gains and losses
• Providing full tax preparation services
• Tax loss harvesting

Pros:

• Providing easier tax filing by enabling users to export transaction histories and import CSV files
• Providing capital gains, income, donation, and closing reports

Cons:

• Accounts without a premium plan have limited features
• Only 100 transactions are allowed with the free version

Selling Gains - Tax Season Impacts

Bitcoin has generally declined during recent tax seasons, from January through March. Despite the possibility that this is just a coincidence, analysts believe that Bitcoin is more likely to struggle in the first quarter of the year than in other months. 

Typically, investors who realized substantial gains in crypto assets in the previous year tend to sell some of their holdings to meet their tax obligations.

Seek Financial Advice

Filing taxes can sometimes become very complicated. Including all the required details and reductions simultaneously to do your taxes properly can be perplexing for non-experts.

If you're declaring your Crypto earnings and losses for the first time, you might want to look into Crypto tax software that offers free tax report files. You can speed up the tax-remission process while still getting solid findings.

Crypto taxes can be simpler when using efficient software is paired with seeking financial advice.

Seeking financial advice from professional crypto CPAs can be a wise choice, at least for the first year or two, until you get a hold of things yourself. 

Final Word 

Crypto transactions you make, the profit you gain in the crypto market, and the tokens you hold in your wallets are all subject to tax.

You need to file your taxes in due time to avoid letters from IRS and further complications. 

Crypto tax software is a good tool for calculating taxes and filing reports.

Koinly, Cointraker, ZenLeder, TaxBit, and BitcoinTaxes are the answers to your question of which crypto tax software is best.

However, doing your taxes alone can be a chore. Missing a detail or not having enough information about crypto tax laws can result in heavy taxes. So, consulting a pro CPA seems to be wise.

Schedule a call today, and our experts will get back to you as soon as possible.

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