Back in the day when Bitcoin first hit the global stage, no one even considered paying tax for their crypto gains or tax even being involved in this evergrowing industry.
However, government bodies have quickly caught on in the past 5 years that people are making monumental gains in cryptocurrency to the like they’ve never seen before. This has caused more laws to be implemented around paying tax for your cryptocurrency gains.
Most major countries have already implemented measures in the tax system for people to lodge their gains and pay the aforementioned tax on them.
It is important to note that you only need to pay tax on your cryptocurrency when you are “cashing out” and making gains on your initial investment, if you are holding year on year and haven’t actually taken any cryptocurrency out yet in profit then you aren’t obligated to pay tax on it until you’ve recorded either a gain or a loss on it.
Using cryptocurrency tax software to handle your tax needs for crypto makes it very easy and streamlined as it can get the price you bought it at, the gains, and then provide you with the relevant tax information for your country so you can lodge your tax correctly.
What to look for in crypto tax software
Having crypto tax software is not enough, you need to make sure that the one that you’re using has add-ons and features that make it easier to use so you don’t have to do a lot of manual data entry. For example, some things to look out for in a good crypto tax software are:
- Automatic syncing with exchanges: If you can connect directly to the exchanges via API with your crypto tax software, they usually have measures in place to get the right data from the right location and provide you with all the data you need seamlessly by looking at your trading history, this makes the process a lot easier but a lot of people may be wary about sharing API keys with software.
- Data import: A good feature to get out of your crypto tax software is an option to do a data import, this means you can export CSV files from systems and import them into your tax software such as your trading history which looks at the open and closes of your trades to do the calculation, this is a safer option if you are worried about APIs.
- Data editing: A good crypto tax software will let you edit the data, classify it, categorize it and give you complete control over the process versus just taking your imported data and using that as the complete basis of your tax statements.
- Data export: Sometimes you can’t get everything you need out of your crypto tax software so it is useful to do a data export into CSV and then work through your data in a spreadsheet before re-importing it into the tax software or another one where you are consolidating all of your tax data.
Other important things to look out for are to do your own research before looking into a crypto tax software, make sure that there are plenty of positive reviews, and that they’re still around and not a scam.
As the cryptocurrency industry is still very volatile and filled with scams it is pertinent that you continue to stay vigilant with any software you are using, especially if you are connecting any API keys to it.
Best crypto tax software to use
1. ZenLedger – Best reputation
One of the oldest players in the market and with tens of thousands of happy customers it is no surprise that they top the list in the best crypto tax software to use. ZenLedger provides a streamlined process for all of your tax needs and contains features such as tax harvesting and detailed tax reports. The costs of ZenLedger range from $49 to $999 a year depending on what you need.
2. Koinly – Best all-rounder
Koinly is a powerful tax software for cryptocurrencies that can automatically import most of your transactions from exchanges and your wallet and provides you with a detailed tax breakdown report that ensures you pay only for what you need to on your tax. The price for Koinly starts from $49 all the way up to $279 so it is a bit of a cheaper option than ZenLedger. The pricing depends on the number of transactions you want to process, from 50, to 10,000+.
3. CoinLedger – Most affordable with NFT support
The third option on our list is CoinLedger, and this is a great option for those needing the basics, starting out and wanting a budget friendly option. CoinLedger provides all the features you would expect out of a crypto tax software and also connects to 100 major exchanges, wallets and also supports NFT’s. The prices range from $49 to $199 depending on your needs and the amount of transactions.
Using a program to manage your cryptocurrency tax affairs can be an amazing time-saver and allow you to streamline the entire process making it easier than paying an accountant that may charge you an arm and a leg.
One thing is for certain, there is a lot more emphasis from government bodies on collecting tax for cryptocurrencies so make sure you get your papers in order.
Crypto tax software is a great tool to add to your crypto assets. Cryptolume also offers web-based software that allows you to create alerts on cryptocurrencies as well as a crypto scanner that allows you to see a birds-eye view of the market