Cryptocurrencies brought four main groups together: investors, traders, miners, and thieves. As the cryptosphere gained more traction, revenue authorities came knocking and started talking about the need for crypto traders and investors to pay tax.
|Crypto Tax software compared|
|Crypto tax tool||Tax loss harvesting||Notes|
|Koinly||NA||Supports all major exchanges|
|Cryptotrader.tax||Yes||Supports USA & Australia|
|Cointracker (Recommended)||Yes||US, UK, Canada, Australia|
Then I realized: Ah, so Benjamin Franklin was right when he said nothing is certain in this world except death and taxes.
As a crypto trader & investor, you need to pay taxes on your crypto income. If not, the tax collectors will come out looking for you.
The question is, where do you start?
Just like you, I had the same headache when I realized I had to start reporting my crypto activities for taxation.
As a guide, I created this simple yet resource-packed piece to help you navigate the crypto taxation space.
So what’s inside this guide?
Ready? Let’s get started.
Whether you are obliged to pay tax on your crypto activities or not depends on where you find yourself. Crypto taxation is a serious topic when you live in the US, Australia, UK, Japan, and France.
These countries have clear-cut regulations on the taxes crypto traders are supposed to pay.
The table below shows countries with crypto tax rules, how they classify cryptocurrencies, and the type of tax you’re obliged to pay as a trader.
Living in any of the countries mentioned above doesn’t mean you will pay tax on every crypto engagement under the sun. These are the cryptocurrency trading and investment activities that require you to pay tax. These activities cut across almost all countries.
Not all cryptocurrency engagements attract taxes. Here are the activities you need to pay taxes on:
The amount of tax you pay on your crypto engagements depends on the activity you undertake. (This is largely based on the tax regulations by the IRS in the US).
Buying and holding a crypto asset and then selling it at a future date attracts a capital gains tax. For example, if you buy bitcoin at $10,000 and sell it at a later date for $13,000, you’re required to pay a capital gains tax on the gains realized, which in this case is $3000. The percentage you pay as crypto capital gains tax, however, depends on whether you held your crypto assets for less than a year or over a year.
This brings us to the two types of taxes in this category: Short-term and long-term capital gains tax (this part focuses on capital gains tax because crypto activities are currently, largely dominated by buying and selling). Remember, however, that there are other activities that attract tax like making a purchase with crypto or when you get paid in crypto for providing services and more).
You’re obliged to pay a short-term capital gains tax when you make gains from the sale of your crypto assets after holding it for less than a year. In the United States, the percentage you pay on short-term capital gains taxes largely depends on whether you’re single, married or head of a household. The table below summarizes tax rates and the different percentages that apply to each group.
For crypto traders in the US, the IRS has a full list of the tax rate that applies to short-term traders and investors.
You’re obliged to pay a long-term capital gains tax when you make gains from the sale of your cryptocurrency after holding it for over a year. The table below illustrates the tax rate for a long-term holder.
Essentially, the rates for long-term capital gains tax are lower and favorable to traders and investors compared to short-term capital gains tax rates. Thus, the tax system rewards those who hold their assets for a long time. hodl on for dear life.
If you’re a crypto trader in the UK, you are obliged to pay capital gains tax or income tax depending on the crypto activities you undertake. Buying and selling crypto attracts a capital gains tax and receiving crypto as payment for services offered or as earnings from mining activities attracts an income tax.
If you earn between £0 and £12,500 on your crypto activities annually, you’re exempted from paying tax. For traders earning between £12,501 and £50,000, you will pay 20% on your crypto earnings. Her Majesty’s Revenue and Customs’ (HMRC) policy paper, describes in detail the nature of crypto activities and taxes in the UK.
Also see: Buy Bitcoins In UK
By now, you have an idea about crypto taxation in your country, how to determine the income taxable from your trading and investment, and the tax rates that apply to your activities.
If your answer to these questions is a big NO, then read on.
This part of the post will take you through 5 cryptocurrency tax software that you can use to import and manage your trading data from crypto exchanges, calculate and report taxes on your crypto activities, all by yourself. Plus some bonus tools.
Here are the tools you’ll discover:
Let’s see what each software can offer you in terms of calculating and reporting on your tax obligations.
TokenTax is one of the most extensive tax calculation and reporting software out there for any crypto trader. The platform has made the entire process hassle-free by integrating with almost every crypto exchange out there. It also works with thousands of cryptocurrencies, so you don’t have to worry about your altcoin not being part of the TokenTax calculation and reporting dashboard.
If you’re a crypto trader bent on minimizing your losses and maximizing your gains, you’ll be amazed by the minimization algorithm provided by TokenTax. This feature will recommend the coins that you should sell in order to minimize the tax you pay your crypto activities and helps you make optimum use of both your portfolio and the tax system.
Notable features of TokenTax
Koinly is another great tool for crypto traders and miners looking to do their taxes. It provides support for traders, investors, and miners in over 100 countries. If you’re looking for a modern portfolio tracker and crypto tax calculator, Koinly is a tool to check out.
In calculating taxes, Koinly considers the accounting system of all supported countries. This makes reporting and tax calculation simple no matter the country you’re. Even if your country is not listed, Koinly is ready to support you when you need help calculating your taxes. The best thing about Koinly is that it can generate country-specific tax forms such as the Form 8949 and Schedule D if you are in the USA or the K4 in Sweden or Capital gains summary if you are in the UK and so on. This means you can simply print out the report and send it to your tax authority instead of having to copy/paste figures onto a form by hand.
When it comes to exchanges, traders have many options to choose from. It also makes integrating with an exchange or wallet simple for any trader using secure read-only API connections. In total, Koinly supports 68 wallets such as Exodus, Trezor, Ledgers etc, over 300 exchanges, and more than 6000 cryptocurrencies.
If you can’t find your exchange among the hundreds supported by Koinly you can simply download and import CSV or Excel files instead. Koinly can import such files without having to make manual changes to them. Tracking your trades and calculating taxes on Koinly is really very simple and easy.
Key features of Koinly
CoinTracking is another great and long-standing tool for all your crypto tax calculation and reporting. It is a crypto portfolio management platform that also provides great tax tools, giving you access to a comprehensive set of data in one dashboard. It tracks your crypto balances and trading milestones to help you make better decisions.
Notable features of CoinTracking
Also read: CoinTracking Review: How To Use CoinTracking App (+ Expert Tips)
If you’re a professional crypto investor in need of a reliable tax calculator, Zenledger might be a perfect fit. It supports many exchanges, crypto assets, and fiat currencies. Zenledger’s dashboard is simple, making it easy for a non-technical person to navigate the platform and calculate their tax without any trouble.
Features to look out for in Zenledger
CoinTracker is another great tool for any crypto trader looking for simple and intuitive crypto tax software. Its user-friendly dashboard makes it easy for you to calculate and report tax even if you’re a beginner. Apart from its tax tools, CoinTracker also has great crypto investment analysis tools to help you make better trading decisions.
Great features of CoinTracker
Blox is a comprehensive crypto tool for any trader or investor looking to organize their daily activities. As an all-in-one tool, Blox comes with almost everything you’ll need as a trader, from a tax calculator to a bookkeeping platform.
Blox’s crypto management tool allows you to track your portfolio and manage your daily activities. It also has a bookkeeping tool for accounting purposes and helps you classify your transaction and earnings. Essentially, the platform is built for exchanges, accounting firms that are into crypto, cryptocurrency financial advisors, individual traders, and institutional investors.
Some great features of Blox
Crypto taxation is not that complicated. After you’ve compiled your crypto activities, your next step is to list your trades on the resource provided by your country’s revenue authorities (if you’re in the US, that’s the IRS form 8949). After this, you need to transfer your total gains to your 1040 Schedule D form (same procedure for stocks).
Luckily, all the crypto tax resources listed in this guide make the entire process simple.
As the cryptocurrencies are becoming mainstream and governments have started classifying Bitcoin and crypto earnings for tax purposes, it is important to become mindful of your crypto earnings.
The questions that I have for you:
Also, if you are aware of crypto tax rules for your country, do share that as well in the comment section below.