Do you do your taxes manually? If yes, you already know how difficult it can be. Cryptocurrency tax reporting services make the process go more smoothly. In addition to making the process easy, it also helps you save money by tax-loss harvesting.
You just got done with your 2021 taxes. So you must be wondering why worry about taxes for the next season?
But the truth is tax-loss harvesting is a year-end approach and you must look out for reporting software that’ll help you strategize your taxes. So let’s get started!
Cryptocurrency Tax Reporting Tools
Tax software is a third-party data integrator that compiles each cryptocurrency transaction from numerous sources to assist ease the process of generating your crypto tax return. Then, using IRS-approved procedures, they assist in calculating crypto taxes.
Top 3 Cryptocurrency Tax Reporting Tools
CryptoTrader.Tax was launched in 2017 in Kansas City and has already received several honors for its tax filing efficiency. The product is made to make calculating crypto taxes simple. And in simple words, it’s one of the cryptocurrency tax reporting tools that is packed with features.
Users may integrate transactions from loads of different cryptocurrency exchanges. The capital gains for all transactions are then calculated using IRS-compliant accounting standards. The company prepares Form 8949 for cryptocurrencies and offers TaxAct and TurboTax bespoke connections.
CoinLedger is a rebranding from CryptoTrader.Tax. CoinLedger plans to provide a number of new cryptocurrency services.
- API Integrations: In most circumstances, the platform allows users to access APIs via an API secret. This makes it simple for people to download large amounts of data with little effort.
- Documentations: Several pages on the platform describe how to access the exchange API and import data from the exchanges.
- TurboTax and TaxAct Integration: Users may connect directly to TurboTax and TaxAct using the portal. There’s no need to repeat the process. To save time, just link your accounting software to CryptoTrader.Tax.
- Trial: For its prepaid plans, solely includes a free trial time. Unfortunately, before you can get the tax reports, you must first pay.
Cryptotrader.tax offers four different prepaid packages. The subscriptions are divided into tiers based on the volume of transactions processed in a given tax year. Let’s take a look at the packages:
|Package||Transactions per tax year||Price|
|Day Trader plan||1,500||$99|
|High Volume plan||5,000||$199|
Robin Singh founded Koinly, a bitcoin tax software startup, in 2018. Koinly is based in London, and it manages tax reporting for over $250 million in funds in the U.K., the U.S., Germany, as well as Sweden
Koinly allows you to integrate and monitor your bitcoin transactions effortlessly. You may use Koinly’s different tools to prep for tax season once you’ve created your account and synced your exchanges and wallets. In addition, Koinly doesn’t even need private keys to function.
Additionally, Koinly protects data in transmission and does not keep track of your credit card information. Koinly is a secured and reliable cryptocurrency tax reporting software as a result of these practices.
- Wallets and Exchanges: Koinly connects to over 350 cryptocurrency exchanges (Binance, Kraken, Gemini, Crypto.com, Coinbase, and so on) and wallets (BlockFi, Exodus, Ledger, Trezor, Nexo, Celsius, and so on), syncing your transactions to your Koinly dashboard instantly. This allows you to start preparing your tax forms by consolidating all of your investment activities in Koinly.
- Error Reconciliation: What’s great is that Koinly can tell what kind of income each transaction is. It can tell if a transaction is an income from staking or from various loan platforms, for example. Koinly’s error reconciliation feature also helps you find missing transaction data and duplicates, ensuring that you’re filing correctly.
- Crypto Tax Report: The Tax Reports page on Koinly gives you a snapshot of your bitcoin activities over the course of a year. Average Cost Basis (ACB), First In First Out (FIFO), Last In First Out (LIFO), and Highest In First Out (HIFO) are the four tax accounting methodologies that Koinly supports.
- Tax Loss Harvesting: Koinly keeps track of every capital gain and loss you’ve had per asset, making it simple to determine which coins you may sell and how much you’ll lose. On its dashboard, it shows you your unrealized profits and losses.
- Portfolio: The console on Koinly gives you a quick snapshot of your portfolio’s value, assets, growth by holding, and activity count. It gives a pie chart analysis of all your assets and indicates how much fiat you have on trades.
Koinly is also cost-effective. For starters, there is a free subscription option that counts up to 10,000 transactions over the course of a lifetime. You will not, however, be able to download accounting reports. You’ll need to subscribe to a subscription plan if you want to get tax reports or do anything else. The four paid options on Koinly are tabulated below:
|Package||Transactions per tax year||Price|
ZenLedger has been around since 2017 and has consistently ranked among the best cryptocurrency tax reporting tools. It is popular among DeFi aficionados and makes it simple to compute and submit taxes on DeFi operations like staking, mining, forks, airdrops, and so on. ZenLedger offers a highly user-friendly layout and a helpful customer service team. Due to its partnership with TurboTax, it is also inherently IRS compliant.
- Portfolio: Over 400 cryptocurrency exchanges, 40 blockchains, and 30+ DeFi protocols are all supported by ZenLedger. It includes popular exchanges such as Binance, BlockFi, Etoro, and others, popular wallets like Copay, Bitpay, Exodus, MetaMask, Mycelium, and others, and also blockchains like Cardano, Vertcoin, etc.
This means you may import your transaction history and holdings into your ZenLedger dashboard from a variety of exchanges, wallets, and crypto projects. Your dashboard will break down portfolio profitability and worth once you’ve imported your crypto activities and investments.
- Tax Reports: The fact that ZenLedger’s tax reports are downloaded is the key reason to consider it. It can swiftly compute additional revenue as well as capital gains and losses since it can import all of your transaction data.
- Tax Loss Harvesting: Tax-loss harvesting is often a year-end plan. With ZenLedger’s tax-loss harvesting feature, you can see your unrealized profits and losses, as well as how many coins you need to sell to optimize your losses.
Tax-loss harvesting may offset up to $3,000 in tax liability each year for bigger portfolios, which is considerable.
- Grand Unified Accounting: The Grand Unified Accounting tool from ZenLedger creates a spreadsheet with all of your payment details from various exchanges and wallets. This comprises a line-by-line analysis of the following:
- Dates of transactions and the exchange you used
- There are cryptocurrencies involved.
- The worth of a transaction
- Fees for trading
- Capital gains, both long-term and short-term
In terms of cost, ZenLedger offers a free account, which is sufficient for individuals who do not conduct a large number of transactions. However, for people who carry out more than 25 transactions, they offer four more options:
|Price per year||Transactions|
|$0||Up to 25|
|$49||Up to 100|
|$149||Up to 5,000|
|$399||Up to 15,000|
Final Verdict: Which is the Best Cryptocurrency Tax Reporting Tool?
The finest software options for cryptocurrency tax reporting tools are those that give accurate, structured, and simple data compilation. They should also be linked to the world’s largest exchanges and support the most commonly used — yet wide range of — cryptocurrencies.
Your capital gains and losses should be easily visible. And lastly, but most importantly, they must also adhere to IRS procedures and guidelines while preparing tax returns.
- What is tax-loss harvesting?
Tax-loss harvesting is a method in which investors sell cryptocurrencies at a loss to offset profits. Crypto profits, stock gains, and even normal income might all be countered by losses.
- What happens if you don’t report taxes on cryptocurrency?
If you don’t record taxable cryptocurrency transactions and are audited by the IRS, you might face fines, interest, and possibly criminal prosecution. It might be termed tax evasion.
- Do I pay taxes on bitcoin if I don’t sell?
No, you do not have to pay taxes on cryptocurrency purchases made with actual money. Also, you need not pay taxes on the cryptocurrency that was gifted to you. However, if you sell, swap, or otherwise dispose of it, you’ll have to pay crypto taxes depending on the capital gain (or loss) that you incurred or your crypto income.