The IRS is aggressively pursuing cryptocurrency traders, despite the incomplete definition of the tax law. We don’t know what the law is (and neither do they) but they want us to file in compliance with it.
I know, that doesn’t make a lot of sense, but that’s the law.
If you currently own crypto or have owned it in the past, you may get one of the IRS letters. What can you do now?
First of all, make sure you know what the law says. When do you have a taxable transaction and when don’t you have one?
Go to my blog at https://www.ustaxaid.com/blog/tax-secrets-for-cryptocurrency/ for more information on what is and what is not taxable.
Do you owe taxes? Or rather, do you owe the IRS a tax return because there were taxable events you didn’t report?
If you need to file for the first time or amend a return, you’ll find information on that at USTaxAid as well. Just do a search on “cryptocurrency” or “crypto” where the blogs are.
The one thing you will need, though, is some accounting. You’ll need to calculate what your basis is and what your gain is. The best way to calculate all that, if you haven’t done so already, is with a specific crypto tax software. Here are some of the hot ones on the market now.
BearTax is a simple and inexpensive cryptocurrency tax software, ideal for newcomers or the most casual investors. It doesn’t calculate taxes for margin or derivative trading, and it doesn’t offer any portfolio tracking, so it may not be suitable for more frequent or advanced traders.
TokenTax offers a premium service that can produce a full tax filing, including your crypto taxes. It also offers a planning service to help tax-optimize your portfolio, and can handle calculations on derivatives trades. Furthermore, TokenTax offers support if you’re an employee earning in crypto, or for special situation such as if you’ve been the victim of a hack.
ZenLedger also offers additional features beyond pure tax reporting, such as support for ICOs and airdrops.
Cointracker isn’t just a tax reporting solution. It actively tracks your entire digital asset portfolio. This is likely to be very helpful if you’ve diversified across many wallets and exchanges, as it means you don’t need to collect all of your holdings into one place come tax season.
Cointracker is international, offering reporting for UK, Canada, and Australia.
Bittax is the only cryptocurrency tax software that appears to be based on blockchain technology. It claims to trace an entire history of user cryptocurrency transactions from the moment the trader entered the markets, and even flag where transaction history appears to be incomplete.
CryptoTrader.Tax provides many similar features as others mentioned on this list. The company emphasizes a user-experience first approach and uses an intuitive 5-step process for completing a tax report.
CryptoTrader.Tax supports more than 25 of the largest cryptocurrency exchanges and has partnered up with TurboTax to allow their users to import their cryptocurrency tax data into the TurboTax platform.
Users can sign up and import all their data for free. Payment is only required once you want to download your tax report.
Node40 offers perhaps one of the best plans for new or novice traders using a single exchange or wallet, as you can import up to 1500 transactions completely free of charge. Given that many tax accountants still aren’t familiar with the tax rules on crypto assets, this service is useful for helping to bridge the gap between the existing tax world and crypto-assets.
Undoubtedly there will be more software packages as crypto tax heats up with IRS audits.