What is Crypto Tax software and how does it work?

There is no way around taxes, not even in crypto. Therefore, you need help filing your taxes the right way so you don’t get in trouble with the law, depending on where you live. To do this, you need crypto tax software to help you calculate your tax.

In this article, we will look at crypto tax software and why you should use it to file your crypto taxes.

What is crypto tax software?

Crypto tax software is software used to prepare crypto taxes. It simplifies the tax return process and allows you to complete your tax return in minutes. Crypto taxes have come to stay, which is why major exchanges like Coinbase report to the IRS regarding the activities of its users for proper tax oversight.

There are many crypto tax software out there. While some are free, others are paid but with free plans with limited features. Because the software is already programmed, anyone can use it to file their taxes, even without any technical or programming knowledge.

Apart from calculating the tax, the crypto tax software also helps to track your crypto wallet. You can use it to organize your transactions and track your transaction history. All of this helps sort your trades into gains and losses, which can be automatically translated into a tax return.

Examples of crypto tax software are Cryptotaxcalculator, ZenLedger, TaxBit and Coinpanda.

Why use Crypto Tax software?

The crypto space is still emerging as it is a new technology. However, as new as it is, governments are seeking taxes from the industry even if they don’t yet have clear regulatory guidelines for the space. This makes it difficult to manage crypto-related tax returns, so you need crypto tax software to automate the process.

Using crypto tax software saves you a lot of stress that you have to go through if you file your taxes manually. First, it calculates your tax in minutes, saving you time. The tax calculation is also usually very accurate, reducing your chances of getting in trouble with law enforcement due to incorrect tax.

As it is also a crypto tracker, it helps you track your portfolio seamlessly to make informed investment decisions.

More so, most of them are equipped with a crypto tax loss collection tool that ensures that you don’t pay more taxes than you should. It also helps you save money.

Crypto tax software is usually programmed with the regulatory requirements of each country supported by the software. For example, if a crypto tax software supports US users, it will be programmed to file taxes with US laws taken into account.

Using the software then ensures that the tax meets the requirements of the law in the country in which you are filing the tax.

How does Crypto Tax software work?

Crypto tax software not only automates the process of filing taxes, but also managing your crypto portfolio and much more. Additionally, depending on the particular software, it can be used to harmonize the wallets of many cryptocurrencies on exchanges and wallets.

Once you have decided which software to use, you need to connect it to your exchange or wallet account. Once done, the software automatically organizes your transactions, including selling, buying, trading, and even receiving cryptocurrency as payment.

It then separates them into gains and losses, which determines what you have to pay tax on and what you don’t, depending on the country’s local legal requirements. This information can either be filled in automatically to file your tax return, or you can choose to file manually.

The software also generates IRS forms for different types of taxes, which you can fill out with the information provided to file your tax. Some crypto tax software, such as Cointracker, also provides general crypto market information, with live cryptocurrency prices for you to monitor the market.

Who Should Use Crypto Tax Software?

The Internal Revenue Service (IRS) recently renewed its efforts to crack down on crypto tax evaders because of how seriously it takes taxation. Therefore, anyone having anything to do with crypto investing needs crypto tax software to file their taxes easily and accurately.

Crypto tax software is useful for individual crypto investors and corporate users who manage the portfolio of many clients. A package is usually designed for each of these categories, tailored to their unique needs.

Whether you are a retail crypto investor, trader, or portfolio manager for many clients, you can use crypto tax software to easily and accurately manage your portfolio and file your taxes.

How much does Crypto Tax software cost?

Each crypto tax software has its own pricing, depending on the features you want to access. Typically, an individual license for crypto tax software will cost you less than $100, although fees vary from software to software, with some having much higher fees than others. While some don’t have free plans, most do, although this only gives limited access to the software’s services.

Others don’t have free plans, but offer a trial period where you can either access all services during the trial period, or you have access to limited services and can only access more than paying for a subscription plan.

You need to decide in advance how much you want to do with the software before subscribing to a plan. If you pay for an advanced (and more expensive) plan, you might find that you don’t need most of the services you can access with such a plan.

Crypto Tax Software Makes Tax Reporting Easier

Filing your crypto taxes can be daunting, which is why people fear tax seasons. However, by using crypto tax software, filing taxes can be done in minutes, rather than spending days trying to sort through your crypto transactions and then figuring out how much you are expected to pay.

Manual tax filing is not only hectic, but it can also be inaccurate and you could end up paying more than you are supposed to. Therefore, you should use tax software whenever you can, because the pros outweigh the cons.