Cryptocurrency trading is a very lucrative and great source of creating income. Early investors and crypto traders have been taking advantage of the great returns offered by the crypto markets without paying any taxes. Well, not anymore since the IRS declared all crypto traders begin to pay taxes from the profits gotten from trading the crypto. However, the problem now becomes calculating these taxes, where crypto tax software is needed.
What is Crypto Tax Software?
Crypto tax software helps crypto traders calculate their net profits and losses across all exchanges and wallets and calculates the amount of tax they have to pay. Crypto tax software is a very useful tool because calculating all profits and losses made from trading the crypto markets can become very confusing for the trader.
Furthermore, the crypto market is very volatile and unpredictable, it can be tough for traders and investors to keep track of all of their winning and losing trades. The crypto tax software removes this stress from the traders and is even more effective because it tracks the data of trading transactions across different exchanges, platforms, and wallets.
History of Crypto tax
Bitcoin was introduced in 2008 by Satoshi Nakamoto, it was not until 2011 that bitcoin was first used as a means of exchanging value when a man decided to exchange 10,000 bitcoin for 2 pizzas. After that moment, bitcoin began to gain traction and was used by different investors to transfer large amounts of money anonymously to any part of the world.
With an increase in cryptocurrency transactions and investors making profit gains from trading cryptocurrencies, the IRS declared cryptocurrency as financial property and therefore a taxable asset in 2014.
The IRS declaration of cryptocurrency as financial property did not, however, accept cryptocurrency as a foreign currency. Prior to 2014, cryptocurrency transactions were not taxable. However, after the announcement by the IRS, crypto traders were taxed for profits and capital gains gotten from trading cryptocurrency.
Crypto tax rates are different depending on the laws of the country. Initially, cryptocurrency transactions carried out on the blockchain were completely anonymous and difficult for tax regulatory agencies to track but now most centralized cryptocurrency agencies provide information of traders to government agencies.
In 2019, the IRS sent 10,000 letters to crypto traders analyzed as owing unpaid crypto tax from profits gotten from trading. It is believed that the information was provided by the centralized exchange, Coinbase.
Although most countries are still debating if cryptocurrencies should be recognized as a foreign currency or not, however, it has been agreed that since cryptocurrencies are used for buying, selling, and trading for profit, they are tradeable assets and therefore taxable assets by the law.
List of Best Crypto Tax Software
Since the implementation of crypto taxes by the IRS, there has been an increase in the number of crypto tax software available. As much as there are lots of crypto tax softawares available, it is still very important to carefully choose an appropriate tax software to work with.
Some of the crypto tax software available includes:
- Bear Tax
- Bitcoin Taxes
- Coin Tracker
- Crypto Tax Calculator
Cheapest Crypto Tax Software
Crypto tax software has different subscription fees depending on which software best suits your needs and the desirable features it has. Some of the cheapest crypto tax software includes
Zenledger is one of the most affordable crypto tax software, it offers great discounts and is also packed with amazing features. It provides all crypto transactions in a very easy-to-understand spreadsheet and can also track non-crypto taxes. Zenleger is an excellent choice for those who trade and want to track their crypto earnings or for their clients. It offers a free plan where traders can track up to 25 transactions. There are other plans however which open for more features, the subscription fee starts from $0, $49 – $999 each which comes with amazing features and benefits.
Taxbit is also another great crypto tax software that is very affordable. Taxbit has an amazing free plan where traders can have unlimited transactions. There’s no limit to how many transactions that can be tracked with the Taxbit free plan, as long as the trader uses one of the 500 companies within the Taxbit Network Partners Program. The taxbit-free plan contains most of the basic features any trader can start with, although it is limited. Traders who would like more features would have to pay for the subscription, which ranges from $50 – %500 per annum.
3. Bitcoin Taxes
This is one of the most affordable and easy-to-use software packages available. It probably has one of the best websites among others, with answers to direct questions readily available on the website. It is also integrated with most of the popular crypto exchanges and offers accurate tracking of crypto profits and capital gains across these channels. The free plan offers unlimited transactions, as well as access to a number of tracking features. The pricing plans for Bitcoin taxes are relatively cheap as compared to other crypto tax software available. Pricing plans start from an affordable rate of $39.95 to $379 per annum.
Which Crypto Tax Software is Best
Koinly is one of the best crypto tax tracking software out there. It is filled with amazing features and one of its highlight features is the automatic importing feature that tracks and automatically imports every transaction fee, profit, and loss encountered during trading across multiple platforms and ensures accurate and precise tax is calculated.
Koinly provides accurate reports and also ensures that the trader is not spending more than what ought to be spent. It is very affordable, and the free plan allows unlimited tracking of more than 10,000 transactions. However, if the trader wants to download the report, then they’d have to pay for any of Koinly’s subscription fees. The subscription fees range from as low as $49 – $279 per annum.
Important features to look out for when choosing a crypto tax software
- Number of integrations
It is very important to check the number of exchanges, wallets, and bitcoin addresses a crypto tax software can integrate with. This is important because most investors/traders make use of a number of different platforms to perform trading and all these platforms and exchanges need to be tracked together by the crypto tax software. The number of possible integrations differs among different crypto tax software, and so it is important for a trader/investor to know the number of exchanges he/she works with in order to choose a suitable tax software that fits.
- Reputation and security
Before choosing a crypto tax tracking software, it is very vital to take time to research and find out the reputation of the software, what past clients are saying about them, etc. This is because security is very important and there may be a lot of substandard software which might end up disorganizing tax information and probably leading to incorrect tax details, which could be seen as a sign of tax evasion by the IRS.
- Accuracy of Tax information
The crypto tax software should be able to properly audit tax information, deduce records, calculate profits and losses across different platforms and provide an accurate final tax report. This is really important because if the crypto tax tracking software is unable to provide accurate data, then you’ll need the services of an expert who defeats the use of crypto tax software in the first place.
Taxes are an inevitable civic duty of every state, and evading taxes is considered a punishable crime by law. The implementation of cryptocurrency taxes is a step forward toward mainstream adoption of cryptos everywhere. It is very important for traders to adhere to the crypto tax laws and remit accordingly.
However, this can be done more easily with the use of appropriate and effective crypto tax software, to avoid mistakes and also ensure credible accounting.