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.
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?
- Why should you worry about crypto taxation?.
- Understand the crypto trading and investment activities that attract taxes and those that don’t.
- You will know the nuances of how to report your crypto revenue for taxation (no CPA needed).
- Above all, I’ll present you with the right tools and platforms to help you calculate and report your taxes hassle-free. Some tools we’ll explore together include:
Ready? Let’s get started.
Why should you be worried about taxes in crypto?
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.
Which of your crypto activities are taxable
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.
- When you sell your cryptocurrency for fiat (USD, GBP, AUD, JPY, EUR…)
- Exchanging your cryptocurrency for another cryptocurrency
- Using your crypto assets to pay for goods or services
- When you receive cryptocurrency as earnings (either through mining or as payment for services offered to a third party)
Non-taxable crypto activities.
Not all cryptocurrency engagements attract taxes. Here are the activities you need to pay taxes on:
- When you move your cryptocurrency from one wallet to another or between crypto exchanges.
- Donating cryptocurrency to a non-taxable charity organization
- When you buy crypto with fiat
- When you give cryptocurrency as a gift to a friend or family.
How to determine the amount of tax you owe from your crypto earnings
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).
Capital Gains Tax
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).
For short-term capital gains tax
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.
For long-term capital gains
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.
Crypto taxation in the UK
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
6 Crypto taxation Tools & Apps
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.
- But do you have to go looking for a tax expert or a CPA to determine your tax and report it on your behalf?
- Can you afford the fees that come with consulting with a third party?
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.
Best Crypto tax reporting and calculation software:
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
- Support for many file types, including Schedule C, 8938, FBAR, and 8949, among others.
- TokenTax is globally accessible. No matter your location, you can use it for tax reporting.
- It provides support for margin trading from Bitmex, Poloniex, and many other platforms.
- As a trader, TokenTax allows you to import data from your wallet or exchange automatically.
- You can also integrate your tax reports with standard accounting tools such as CCH, Drake Accounting, and TurboTax among others.
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
- Modern and user-friendly UI that makes it really simple to use even for beginners.
- Integrates with more than 300 exchanges and wallets via API or CSV files.
- It allows you to track trades and transactions in real-time with profit/loss graphs and complete portfolio overview.
- Supports Average Cost, FIFO, LIFO, and Specific Identification (Multiple Depot) accounting methods
- Traders can generate tax reports based on the accounting system of their countries.
- Traders can export their crypto reports to general tax tools such as Xero and TurboTax.
- Generates legal tax documents for traders, including Form 8949 for US customers and K4 for Swedish traders. There’s also Rf1159 for Norwegian traders and many other country-specific documents.
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
- CoinTracking provides support for many exchanges, including legacy support for closed exchanges like Mt. Gox.
- It gives you access to real-time reports on profits, losses, and asset value.
- CoinTracking has support for over 6000 crypto assets, so even your shitcoin that just launched last 2 months might be there.
- Allows you to import data from exchanges and wallets with support for JSON, PDF, CSV, Excel, and XML file formats.
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
- Zenledger takes every minute detail into account, so you don’t have to worry about overpaying your taxes.
- It comes with great CPA tools to help accountants who are into the crypto taxation ecosystem.
- It can automatically generate different tax reports using the data you provided in minutes.
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
- CoinTracker has partnered with Coinbase and TurboTax to streamline the tax reporting process for you.
- The platform has support for margin trading on major crypto exchanges
- It allows you to seamlessly connect your wallets to your exchanges, which gives you access to tax calculation and reporting tools and a portfolio management section, all in a single dashboard.
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
- You have a complete dashboard to track all your transactions and automatically synchronize them with your preferred crypto wallet or exchange.
- Allows you to generate all the financial reports you’ll need, including accounts and transaction details, asset classification, and mining income, among others.
- Blox also comes with an API to help developers seamlessly integrate the crypto portfolio management tool with wallets and exchanges.
Additional great crypto tax tools
Do you need a CPA after you have calculated your crypto taxes?
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.
How are you calculating Cryptocurrency taxes?
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:
- Are you calculating taxes on crypto?
- How are you doing tax calculations on crypto trading and investing?
- What crypto tax software are you using?
Also, if you are aware of crypto tax rules for your country, do share that as well in the comment section below.
Harsh Agrawal is the Crypto exchanges and bots experts for CoinSutra. He founded CoinSutra in 2016, and one of the industry’s most regarded professional blogger in fintech space.
An award-winning blogger with a track record of 10+ years. He has a background in both finance and technology and holds professional qualifications in Information technology.
An international speaker and author who loves blockchain and crypto world.
After discovering about decentralized finance and with his background of Information technology, he made his mission to help others learn and get started with it via CoinSutra.
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