What Is Crypto Tax Software and How Does It Work?
There’s no way around taxes, not even in crypto. Therefore, you need help with filing taxes the right way so that you don’t get into trouble with the law, depending on where you live. To do this, you need crypto tax software to help you calculate your tax.
In this article, we will examine crypto tax software and why you should use it to file your crypto taxes.
What Is Crypto Tax Software?
Crypto tax software is software used for preparing crypto taxes. It simplifies the process of filing taxes and makes it possible to complete your tax filing in a matter of minutes. Crypto taxes have come to stay, which is why top exchanges like Coinbase report to the IRS concerning the activities of its users for proper tax monitoring.
There are many crypto tax software out there. While some are free to use, others are paid, but with free plans with limited features. Because the software is already programmed, anyone can use them to file their taxes, even without any technical knowledge or programming.
Apart from calculating tax, crypto tax software also helps track your crypto portfolio. You can use it to organize your transactions and track your transaction history. All of this helps to sort your transactions into gains and losses, which may be automatically translated into tax filing.
Examples of crypto tax software are Cryptotaxcalculator, ZenLedger, TaxBit, and Coinpanda.
Why Use Crypto Tax Software?
The crypto space is still emerging since it is a new technology. However, as new as it is, governments are looking to get taxes from the industry even though they don’t yet have clear regulatory guidelines for the space. This makes handling crypto-related tax filing challenging, so you need crypto tax software to automate the process.
Using crypto tax software saves you a lot of stress that you must go through if you file your taxes manually. First, it calculates your tax within minutes, which is time-saving. The tax calculation is also usually highly accurate, which reduces your chances of getting in trouble with law enforcement due to incorrect tax.
As it is also a crypto tracking tool, it helps you track your portfolio seamlessly to make informed investment decisions.
Even more than this, most of them are equipped with a crypto tax loss harvesting tool that ensures you don’t pay more tax than you should. This helps you to save money as well.
Crypto tax software is usually programmed with the regulatory requirements of each country the software supports. For instance, if a crypto tax software supports users from the US, it will be programmed to file taxes with US laws factored in.
Using the software then ensures that the tax meets the requirements of the law in whichever country you are filing the tax in.
How Does Crypto Tax Software Work?
Crypto tax software automates the process of not just filing taxes but also the management of your crypto portfolio and even more. In addition, depending on the particular software, it can be used to harmonize portfolios for many cryptocurrencies across exchanges and wallets.
Once you decide which software to use, you need to connect it to your exchange or wallet account. Once this is done, the software automatically organizes your transactions, including selling, buying, trading, and even receiving cryptocurrency as payment.
It then separates them into gains and losses, which determines what you should pay tax on and what you shouldn’t, depending on the local legal requirements of the country. This information can either be filled in automatically to file your tax, or you may choose to file manually.
The software also generates IRS forms for different types of taxes, which you can fill with the provided information to file your tax. Some crypto tax software, such as Cointracker, also provides information on the general crypto market, with live cryptocurrency prices for you to monitor the market.
Who Should Use Crypto Tax Software?
The Internal Revenue Service (IRS) recently renewed efforts at cracking down on crypto tax evaders because of how seriously it takes taxation. Therefore, anyone with anything to do with crypto investing needs crypto tax software to file their taxes easily and accurately.
Crypto tax software is useful for individual crypto investors and corporate users who manage the portfolio of many clients. A package is usually designed for each of these categories, tailored to suit their unique needs.
Whether you’re a retail crypto investor, a trader, or a portfolio manager for many clients, you can use crypto tax software to easily and accurately manage your portfolio and file your taxes.
How Much Does Crypto Tax Software Cost?
Every crypto tax software has its own pricing, depending on what features you wish to access. Typically, an individual license for crypto tax software will set you back less than $100, though fees vary from one software to another, with some having much higher fees than others. While some don’t have free plans, most have, although this only gives limited access to the software’s services.
Others don’t have free plans but offer a trial period during which you can either access the full spectrum of services for the trial period, or you are given access to limited services and can only access more by paying for a subscription plan.
You should decide ahead of time how much you wish to do with the software before subscribing to a plan. If you pay for an advanced (and more expensive) plan, you may find out that you don’t need most of the services you can access with such a plan.
Crypto Tax Software Makes Tax Filing Easy
Filing your crypto taxes can be daunting, which is why people fear tax seasons. Using crypto tax software, however, filing taxes can be done in a few minutes, rather than spending several days trying to sort out your crypto transactions and then determining how much you’re supposed to pay.
Manually filing taxes is not only hectic, but it can also be inaccurate, and you may end up paying more than you are supposed to pay. Therefore, you should use tax software whenever you can, as the advantages outweigh the disadvantages.