This age has witnessed a rapid rise in the popularity of cryptocurrencies since its inception in 2009. However, this interest has been accompanied by massive amounts of confusion around crypto taxes. Fortunately, the introduction of the best cryptocurrency tax calculator has done well to remedy this problem.
Cryptocurrency in a Nutshell
Cryptocurrency, at its base, is a digital medium of exchange that uses cryptographic functions to verify and secure crypto transactions.
It operates without having to report to a regulating body. In a nutshell, there is no central authority that can monitor and regulate cryptocurrencies. However, this is not the case with the U.S Dollar, which is a conventional fiat currency.
What differentiates Cryptocurrencies from other currencies?
- Regardless of what you do, a crypto transaction cannot be reversed once it is confirmed.
- You are under no obligation to report to your local bank or any other regulatory body to carry out crypto transactions.
- The crypto transactions that you perform are on addresses that consist of multiple characters. It is not possible to identify the real-world owners of these accounts.
- Given how virtual currencies are not backed or controlled by any Government or bank, their immunity to foreign influence is what renders them invulnerable to security attacks.
File Crypto Taxes – When and How?
The Internal Revenue Service (IRS) stated that cryptocurrencies have to be taxed under the same rules as any other property or capital gains.
You have to report your capital gains on form 8949. You need to pay short-term capital gains tax if you sell your crypto within a year from the time of purchase, and you will have to pay long-term capital gains tax should you decide to wait for over a year before selling it.
If your cryptocurrency goes through a hard fork, your newly forked cryptocurrency will be taxed as income.
However, soft forks are said not to give rise to tax. This conclusion is based on the assumption that a taxpayer who owns virtual currency that goes through a soft fork will not get new coins as a consequence of the soft fork.
Using the Best Crypto Tax Software
Given how the process of filing crypto taxes has plagued the lives of beginner crypto traders and experts alike, it only makes sense to get your hands on some of the best crypto tax software to simplify your crypto endeavors.
The Best Crypto Tax Software you can Hope to Find
ZenLedger finds its place on this list of the best crypto tax software out there for the following reasons:
- It is compatible with all exchanges, along with all the crypto and fiat currencies. Examples of the same include Bitcoin, Ethereum, Litecoin, Dollars, and so forth.
- It seamlessly imports your trading history and readies the necessary documentation, including donation reports, closing reports, capital gains reports, and income reports.
- ZenLedger ensures you do not overpay your taxes. It produces profit and loss statements for you and your CPA.
TokenTax is one of the go-to and best crypto tax software for most crypto traders. Designed to support every exchange there is, it is not surprising that TokenTax is found on most lists for best crypto tax software. Here’s why:
- TokenTax enables you to generate tax forms like the Form 8949 for returns or to import into TurboTax seamlessly. It makes use of your crypto trading information to fill your form 8949.
- TokenTax allows you to track your capital gains, capital losses, and tax liability without hassle for every cryptocurrency transaction.
- It has a tax-loss harvesting dashboard that shows you exactly what your unrealized gains and losses are.
CryptoTrader.tax enables its crypto traders to calculate their capital gains or loss almost instantly. CryptoTrader.tax eases the process of importing your trades and makes sure that you are not overpaying your taxes.
You can download the completed IRS forms to file the returns yourself, send it to an accountant for the same, or import it into software like TurboTax and TaxAct. Ensure each tax report includes the following components:
- Your Cryptocurrency Income report
- Long-term and Short-term sales report
- TurboTax Direct Import
- The End of Year Positions Report
- Your Audit Trail Report
- Your IRS 8949 form
- TaxAct Direct Import
It has a built-in tax-loss harvesting tool that enables you to reduce your capital gains. CryptoTrader.Tax is known to have international tax support. It is capable of calculating your gains and losses using every conventional fiat currency.
Learn more about What to Look for in Choosing Crypto Tax Software
CoinTracker is popularly known as one of the best crypto tax software and portfolio trackers. Here are a few features that have helped CoinTracker make a name for itself:
- Crypto traders can swiftly review their tax summary and download the reports required to file their crypto taxes. It can be seamlessly integrated with TurboTax.
- As a crypto trader, you should have no problem tracking your crypto portfolio. CoinTracker enables fee and margin trading.
- Also, it is known to utilize a unified dashboard. Aside from this, it provides crypto traders with a performance tracker, which is highly likely to bring you some clarity about your crypto investments over a specified period.
The aforementioned features prove that these are some of the best crypto tax software you can ever hope to encounter. As a crypto trader, it has never been easier to file your crypto taxes.