Best Crypto Tax Software and Calculators

The Fundamentals of Cryptocurrency Taxation

Before you choose a software, it is essential to familizarize yourself with the basics of crypto taxation and learn how cryptcurrencies are taxed.

What is Taxable and What Isn't

To start with, let’s discuss what is not taxable when investing in cryptocurrencies. Purchasing cryptocurrency with fiat money isn’t a taxable event, and neither is holding it on the exchange, or transferring it to your personal wallet.

Personal wallet-to-wallet transactions are also exempt, and so are crypto gifts you send to anyone (as long as the amount is less than $15,000), as well as crypto donations to tax-exempt organizations.

On the other hand, selling crypto for fiat is taxable. Buying crypto with another crypto is also a taxable event, and so is using cryptocurrency to buy goods and services.

Also, if you are getting paid in crypto for your goods and services, also known as receiving crypto as income, you’ll also have to pay taxes on its current value at the moment of payment.

Determining How Much Tax is Owed per Trade

With such a volatile market as crypto, calculating the amount on which you’d owe taxes can get tricky. The rule of thumb is that you owe taxes on either short-term or long-term capital gains/losses on the difference in value of crypto between the day bought and day spent/traded.

For example, if you purchased Bitcoin for $100, and spent it within the year at the value of $300, you’ll have to pay short-term capital gains tax on those $200. How much you’ll pay on those $200 depends on the short-term tax rate which changes each year.

If you’ve spent it after a year, that falls under the long-term tax rate, which depends on your overall taxable income and also changes each year.

How to Avoid High Crypto Taxes

There are a lot of ways to reduce the taxes you have to pay on crypto gains, however, remember that there’s a difference between reducing taxes legally through proper portfolio management and tax evasion.

You can legally reduce your tax amounts by considering some of the following methods:

• Hire Professional Support in the Form of an Accountant

Possibly the best way to reduce taxes is to work with a professional that can customize how you manage your crypto portfolio alongside other income you may have. It’s always smart to hire professional help, the cost of an accountant will be quickly offset by the amount they can help you save.

• Harvest Losses or Take Profits in a Low-Income Year

You can lower taxes by calculating how much you’ll be taxed if you’ve taken some losses on the trading front. A loss on the crypto end may end up bringing your profits to a lower tax margin which may mean you get to keep more earnings, just make sure to calculate everything correctly, preferably using a tax software.

On top of that, you could consider taking out crypto profits in a low-income year as to not affect your tax bracket.

• Buy and Sell Crypto Through Your IRA or 401-K

Retirement accounts are there to help you build security for the future, which is why they’re a great option when it comes to building wealth through crypto. If you’re under 50 you can contribute $7,000 per year to your IRAs and self-directed IRAs, similarly to how precious metals and real estate IRA investments work. This amount is tax exempt.

Tracking Your Crypto Taxes

Keeping track of all your crypto transactions and taxes is best handled through a software that integrates well with your crypto exchange. We also advise that you hire an accountant that can help you manage your crypto portfolio alongside other income streams.

IRS and Crypto Transactions

The IRS has full backdoor access to all crypto transactions and can pinpoint tax and crypto fraud with no issues. Since in order to hold and trade crypto, people have to go through an exchange, all transactions are linked to the entered information during registration. 

The IRS can get that information on demand from places like Coinbase and Kraken, and these exchanges have to collect this information as dictated by the ‘Know Your Customer’ (KYC) regulations. So in short, crypto transactions are not anonymous and are best viewed as any other form of traditional investment.

What Must Be Reported

You must report all forms of income, gain and loss from all forms of taxable transactions, which involve crypto, regardless of the amount.

By managing your portfolio well and with the help of an accountant, you can make sure to optimize your taxable income and avoid tax penalties.

What Happens When You Don't Report Cryptocurrency on Taxes

If you deliberately avoid reporting crypto on taxes, you could get audited by the IRS.

This is a daunting process that could lead to you paying a significant amount in penalties or worse.

It is, of course, advisable to report your cryptocurrency income and trading as accurately as possible and pay the tax on cryptocurrency to avoid potentially harsh consequences.

How to File Crypto Taxes

Just like other, ‘traditional’ or digital assets, cryptocurrency is subject to taxation in the U.S. on the basis of ordinary income and capital gains tax. Filing your cryptocurrency gains and losses must be reported to the IRS just like any other form of income. 

The IRS has full insight into crypto transactions and they can request information from exchanges if they wish to audit transaction history for any individual.

Filing your crypto taxes is pretty straightforward, but we recommend that you hire an accountant in order to optimize your portfolio and ensure that everything has been reported properly.

Remember that any time you trade, exchange crypto for fiat currencies, exchange cryptocurrencies or even purchase goods and services with crypto, you should keep track of these transactions so that you may accurately calculate your gains and losses.

IRS Form 8949 - Sales and Other Dispositions of Capital Assets

Capital assets such as stocks, bonds and cryptocurrencies are tracked and reported through IRS Form 8949. Once you’ve calculated your crypto totals for the year, include it on Form Schedule D.

Schedule D helps you calculate and report your overall capital gains and losses from all sources, including crypto. This can also include your Schedule K-1s via businesses, estates and trusts.

Make sure to include all crypto gains, including mining, staking, lending, interest and receiving payment in the form of crypto for the work you have done (this falls under income tax).

Once you’ve calculated your crypto gains and losses, including them as part of capital and/or income tax, you can complete the rest of your tax return normally.

What Features to Look for in Crypto Tax Software

Calculating crypto taxes accurately is essential when diving into this trading space. As mentioned before - every action you take in the crypto world is still taxable in the eyes of the IRS, and you should have your documents in order.

Tax software can help you manage your portfolio and submit accurate reports without overpaying your taxes or paying any penalties. Make sure to look for the following when parsing through the market's offers.

Available Integrations

The software should be able to integrate with popular exchanges and wallets to allow for automatic data input.

If you are a professional trader, manually keeping track of all your transactions can be troublesome but even if you’re not, having data input on hand will save a lot of time and increase accuracy when filing your reports.

You need to keep track not only of prices but also dates, the amount of coins or tokens you traded, and the length of time you kept those in your wallet.

It is also important that the software you choose can be used in your country, as the taxes differ depending on where you live. The app you choose should follow taxation standards in your country.

Even if you are not a professional trader and have a smaller amount of transactions per year, integration tools can save you hours when calculating crypto taxes. 

Accuracy of Ready-To-Use Paperwork for Filing Tax Reports

The software of your choice should be able to present you with pre-filled and ready-to-download paperwork you can file. It should help you with more than just IRS Form 8949.

You ought to be able to rely on it for international taxes, your audit track, and especially for reporting your taxes on cryptocurrency gains and losses which should be provided as per standard with ready-to-file, accurate paperwork.

A Complete Toolset With Relevant Features

A good solution will also have excellent dashboards for tracking your transaction history.

From there, it should have you covered in terms of crypto tax-loss harvesting and other features intended to simplify your tax handling.

Some of these software solutions will recognize transactions between your wallets and save you from paying taxes on them unnecessarily. Others will automatically remove duplicate transactions from your forms. 

Having all these features available saves time for tax professionals, too. Some of these solutions offer software for tax professionals to help them manage taxes on crypto gains for their clients.

Some solutions offer you to hire a team of tax professionals, which could be beneficial for professional traders who don’t have the time to double-check software reports.

Other providers include non-crypto tax handling - a perfect option for those looking to handle all their taxes in one place. However, it might be better to go with a dedicated, traditional tax software solution if you need that.

Good Reputation and Security for Peace-of-Mind Tax Filing

Other essential aspects of each software handling taxes (especially in the crypto world) are its reputation and security. You want to make sure you are working with a reliable and secure tax software.

You don't want it to incorrectly calculate your reports and have to pay penalties once the IRS compares your report to those submitted by crypto websites.

Before committing to a particular software, you should be aware of other users’ experiences and read up on user reviews.

Checking customer reviews is an excellent idea that could help you determine whether or not it is the right software to go with.

Free Trial and an Affordable Pricing Model

The best way to test a software is by getting hands-on experience with a free trial. Many providers on this list offer try-before-you-buy options or have basic plans that cost very little.

First-hand experience with your chosen software is the key to finding the right tool to help you handle your taxes on cryptocurrency. 

Lastly, there is also the question of the value you get for the price you pay. It would be best to know how many transactions you make per tax year, as these pricing tiers are mainly based on that number. You should also check whether the software will scale well if you make more transactions in the upcoming year.

With some solutions, different tiers unlock different features. However, not all features are worth the extra cost. Remember that getting accurate tax reports, on time, is what matters most, so don’t fall for expensive bonus features unless you really need them.