How to Find the Best Crypto Tax Software for Your Needs
We outline what you should be looking for when evaluating tax software for your crypto or bitcoin assets.
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This article is part of TokenTax's Cryptocurrency Tax Guide.
The best crypto tax software platforms are designed to simplify the process of compiling your trades, calculating capital gains, and creating crypto tax reports. Without software, completing your crypto taxes yourself may be a long and arduous process. Below, we've outlined how software can help you at each step of the crypto tax reporting process—and what you should be looking for when evaluating crypto tax software providers.
Every time you sell, trade, or otherwise dispose of cryptocurrency, you are realizing a taxable event. For many investors and traders, especially high volume traders, this makes reporting crypto taxes a challenge. However, crypto tax software helps in three major ways:
Every exchange reports purchases, trades, and sales in different formats. But for your tax reporting, this data needs to be standardized, organized, and sorted.
This can be very tedious if you need to track hundreds or even thousands of trades from multiple exchanges. Crypto accounting software automatically imports data from exchanges and keeps them in one ongoing record.
To report your crypto taxes, you need to establish the fiat cost basis of each asset, as well as the fiat value equivalent of all sales, trades, or other transactions.
Cryptocurrency accounting software can handle this process automatically by tracking down the fiat value prices per coin on the date of each transaction.
After standardizing your tax data, purchases and sales need to be paired via an accounting method like FIFO or LIFO in order to calculate your capital gains or losses. More complicated situations, like DeFi loans or margin trading, will require special attention.
Crypto and bitcoin tax software will automatically use all the IRS-accepted accounting methods to link your cost basis with corresponding trades to calculate the capital gains or losses for the current tax year. It can also reconcile previous years' data if your tax professsional determines it needs to be amendeded.
Capital gains and losses and their associated dates and cost basis need to be formatted into a tax report. Crypto tax tools take the data and calculations and automatically construct standardized tax forms, like the Form 8949 for U.S. filers, or international tax reports for filers in many other countries.
It’s important to keep track of your gains and losses throughout the year so you are prepared to pay your taxes come tax season. You’ll want to know what tax liability you have incurred, and what unrealized gains or losses you may occur by the end of the tax year. You can also use crypto accounting software to harvest your losses in order to reduce your taxes.
Crypto tax software makes your life easier by aggregating your data, calculating your tax liability, and creating your reports quickly in a few easy steps. When deciding on the best cryptocurrency software for your tax preparation, you should look for a few key attributes:
- Crypto tax software should allow you to you to upload all of your cryptocurrency CSV files, connect your APIs and wallets with seamless crypto exchange integration.
- Look for a platform that displays all your taxable events in one view, like our TokenTax dashboard below.
- Be sure the platform automatically generates your needed tax forms and supports more advanced tax situations. The crypto tax software should generate the Form 8949 for U.S. filers and international gain and loss reports. It should also allow you to export files for all major tax filing platforms, like TurboTax or TaxAct.
- To minimize your tax liability, the crypto tax software should track your current year tax liability and also automate tax loss harvesting for you at year-end. You should also expect the software to be CPA-friendly so that you can easily work with the internal or external tax preparer of your choice.
If you don't want to use crypto tax software, there are a few alternatives. If your situation is relatively simple, you may also be able to handle it yourself with manual calculations. Otherwise, it may be wise to hire a crypto CPA or a crypto tax lawyer, a trained professional who will take your data and reconcile your taxes for you.