Traders buy and sell on exchanges, miners earn coins through their work and employees are being paid in cryptos for their time.
Now the taxman has finally caught up…and he wants your money.
But how are your coins taxed? And what are they classified as? As an asset or a currency? There are many questions being asked and often only very complex answers to them.
That’s where cryptocurrency accounting software comes in.
Tax isn’t fun. We get it.
That’s why a growing number of developers have launched apps to help traders, miners, ICOs, and anyone else involved in the crypto community to figure out how to stay on the right side of the law.
You probably have a million other things you’d rather be doing than counting pennies and organizing spreadsheets. That’s why it’s a good idea to get your hands on one of the many cryptocurrency accounting apps that are on the market.
Koinly is an app that makes it easy to import your data and download capital gains tax forms like the 8949, Schedule D and export to Turbotax. It supports the US, UK, Canada, Australia and various other countries.
Price range: Depends on features needed. Free to $249 per year.
CryptoTrader offers an easy way to calculate all your crypto taxes, and has integration with TurboTax.
Price range: Free - $299 - Depends on Volume.
Accointing allows you to track your crypto portfolio while keeping a record of all your transactions in order for you to be able to print a tax report at any point in time. It exports your trades in the proper format for taxes in the USA, United Kingdom, Austria, Germany and Switzerland.
Price range: Free - $259 per year.
CoinTracking provides you will a real-time trading overview, coin value fluctuations, tax reports, and more. They are considered one of the leading cryptocurrency accounting applications.
Price range: $3494 for lifetime access.
Blox is an app that syncronises data from across all wallets and exchanges to give you a real-time report of your assets. It caters to accountants, traders, miners, funds, and VCs.
Price range: Free - $249 per month.
Unfortunately, in most countries, the laws and regulations around crypto are murky at best. This is especially true in the Unites States.
Different parts of the government disagree about what kind of asset virtual currencies like Bitcoin are. The SEC does not consider Bitcoin a security. Instead it is a commodity. The IRS considers Bitcoin property.
Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.
That means you are expected to keep track of not only every trade but every transaction. Due to Bitcoin’s usage as money, the IRS has a hard time differentiating between using Bitcoin as a speculative asset to be traded and and using Bitcoin to buy a cup of coffee. This makes trading and using Bitcoin and other coins with different legal definitions very cumbersome come tax season.
On top of that, the IRS has warned many holders of crypto that they are very serious about citizens who skirt the laws or try to use crypto to evade taxes…and they will find out.
You could spend countless hours tracking all of your trades and purchases and trying to make sense of capital gains. This is amplified by the fact that individual states have their own laws.
That’s why software like the one’s recommended above are so handy. Sure, each of them cost a few bucks, but for the time you save and the protection this software gives you if you are ever audited is worth every satoshi.
With so many options available to you, it can easily become overwhelming. That’s why it’s a good idea to first make a proper assessment of your requirements when it comes to accounting.
So who needs what?
If you’re a casual trader or only deal with cryptos on a hobby-level, then you’ll be able to get by using some of the free services out there.
If, however, you’re a power-user who deals with thousands of transactions every year, then it’s best to invest in a proper service that syncronises all your accounts into one dashboard.
Finally, if you have your finger in many crypto pies, such as stablecoins and ICOs, then it’s best to seek guidance from a certified accountant who understands each of your asset categories.
If you have ever paid taxes on real estate or any other hard asset, then crypto works the same way. Any profits are taxed as capital gains.
That means you pay taxes on the difference between the price you bought the coins and and the price you sell them at. This is true whether you live in Canada, the US, or the UK, as well as many other countries.
You must report both profits AND losses. However, if you report losses, you may actually be entitled to reduce your crypto taxes in the future so its actually in your interest to report these losses.
Yes, anytime you trade one cryptocurrency for another, you are effectively selling the first currency and buying the second one.
This creates either a profit or a loss of the first cryptocurrency and a new cost-basis for reporting the second. Make sure to keep track of all crypto to crypto trades.
If you do not own the second wallet, then yes, you must pay capital gains on the coins you transferred since you are effectively ‘selling’ them.
If you own both wallets, there is no sale, and therefore there is no tax reporting liability.