Reporting crypto taxation can be highly daunting, especially when it involves numerous transactions, gains, and losses. Many newbies find it difficult to incorporate the appropriate tax obligations. However, with the help of a crypto tax calculator, users are guaranteed accurate and faster results.
Cypto tax calculators are tools used for accurately calculating and reporting cryptocurrency taxes. The process is usually automated, as most software doesn’t require manual input of taxable events.
The features, accuracy, and pricing structures vary for different calculators. Thus, users are encouraged to consider certain factors before choosing a crypto tax calculator. These factors are further discussed in this piece.
Concept of Crypto Tax Calculation
A crypto tax calculator will estimate the payable tax value incurred on an individual or entity while considering all applicable rules. The rules guiding crypto taxation vary in different countries. For instance, the United Kingdom tax can be an Income or Gain Tax, depending on an individual’s transactions. In all cases, crypto taxes are applicable only when you profit from the trade.
You can enjoy a tax allowance of £6,000 (2023/24) in the UK, which was previously £12,300. You will be charged 10%-20% for any transaction above this allowance. On the other hand, digital assets are taxed at a flat rate of 30% in India. You will also receive a 4% deduction known as cess taxation.
All crypto-related activities or transactions in the United States are taxed according to the Internal Revenue Service (IRS) requirements. Also, businesses or organizations that pay staff with cryptocurrency are expected to report on Form W-2. All transactions recorded by the IRS must be accurate to avoid possible legal charges or fines.
Meanwhile, here is a tweet explaining how to calculate crypto taxes in India.
As tax season approaches, there have been many questions from the crypto community regarding the calculation of crypto taxes in India🇮🇳.
In this🧵, I will explain taxation on various crypto incomes (Ultimate Crypto tax guide) #CryptoTaxWithKoinX
— Pushpendra Singh (@pushpendrakum) June 16, 2023Choosing a Crypto Tax Calculator
Before selecting a crypto tax calculator, consider the following factors.
Data Integration
You need to consider the process involved in inputting the data from your wallet or crypto exchange into the crypto tax calculator. It must be hassle-free without requiring manual implementation. You should confirm if the calculator can check all relevant data, including duration, dates of transaction, and number of coins.
It’s crucial to check the calculator’s compatibility with crypto platforms, including Decentralized Finance (DeFi), mining swaps, and Non-fungible tokens (NFTs). However, you will need a rarity calculation tool to calculate the number and copies of NFTs in a collection. Check this piece for further information on calculating NFT rarity.
Cost and Transaction Limits
You should prioritize crypto calculators with transparent payment plans and transaction limits. One of the ways to get the best price for the right services is through a free plan. Tax calculators often offer users a free plan for 30 transactions and below, especially for first-time users. You can read DroomDroom’s article on saving costs using the right crypto tax calculator.
Support for Countries
Choosing a crypto tax calculator that addresses all your country’s requirements is crucial. If you often travel outside your region, you must consider the software’s accessibility in your visiting country. Sometimes, the software will demand you input your data manually if outside a specific area. Also, find out if your country uses exclusive accounting methods, such as First-In-First-Out (FIFO), Last-In-First-Out (LIFO), Adjusted Cost Base (ACB), and Highest-In First-Out (HIFO). For Australia, the default accounting method is FIFO, but you can also use LIFO.
Available Security
Make sure to choose a crypto tax calculator that’s highly reliable and trustworthy. Thus, look out for software built by crypto veterans and CPAs. You may also consider software associated with reputable accounting companies. By doing so, you can be rest assured your information is secured.
Reputation and Community
A great community backs every significant aspect of cryptocurrency, including the decision-making process. For instance, CoinDesk reported how the crypto community demanded clearer rules guiding asset taxation. Thus, ensure your preferred crypto tax calculator has communities where you can share your problems. In these communities, you may also learn to explore your calculator features. If you are a newbie, this is an opportunity to learn how to use a crypto tax calculator effectively.
Customer Support
Having a crypto tax calculator that provides excellent support for users is an added advantage. A live chat should be readily available to promptly respond to users enquiries. You should also have access to resources that contain detailed guidance.
Besides the abovementioned factors, big investors must put extra measures in place to get the best result, especially for investors with large transaction volumes (about 400k+). Here is an opinion from a crypto tax expert.
…have exchanges, wallets, and DEXs to provide accurate transaction history data that can be exported in a format that’s easy to understand. Also, use powerful and well-designed crypto tax software to accommodate huge amounts of data from different sources. The software should also follow official crypto tax rules and general tax principles.
Co-Founder and CEO of Polygon Advisory Group, Sharon Yip.
Top 5 Cryptocurrency Tax Calculator for 2023
A thorough research was conducted to determine the top and best crypto tax calculators for 2023. Hence, it was discovered that certain software have updated features that will accurately calculate your crypto taxes.
Koinly
- Supports up to 100 countries.
- Generates countries-specific tax forms, such as K4 for Sweden and Form 8949 for US residents.
- Supports 68 wallets, including Ledgers, Trezor, etc.
- Supports over 6000 cryptocurrencies and 300 exchanges.
- Ability to integrate exchanges via CSV and API.
- Supports different accounting methods.
Con: No option for unlimited transactions.
CoinLedger
- Great crypto investment analysis tools.
- Partnership with TurboTax and Coinbase for a simplified process.
- Has more than 300,000 investors.
- Supports 10,000+ cryptocurrencies.
- Integrates 3 DeFi and 55 exchanges.
Con: No free trial
TokenTax
- Offers accounting services to investors.
- Supports FBAR, Schedule C, 8949, 8938, and many others.
- Utilize standard accounting tools like Drake Accounting, CCH, and TurboTax.
- Opportunity to harvest lost tax.
- Live chat support.
Cons: No free trial, no refund, and quite more expensive than most other software.
ZenLedger
- Over 50,000 users
- US users have unrestricted access to the downloadable documents.
- Integrates over 20 DeFi protocols, 40 blockchains, and 400 exchanges.
- Enjoy free access for 25 transactions and below.
Con: You can only maximize DeFi and NFTs by subscribing to professional prepaid plans.
CoinTracker
- Supports 110+ exchanges
- Supports over 6,000 crypto assets, including shitcoins.
- 1.1 million active users in about 100 countries.
- Encrypts data and API
- Users can customize up to 25 crypto reports.
- Quality backup feature to users’ portfolios.
Con: Free users have no access to the API feature.
Taxable Crypto Events
Cryptocurrency is often regarded as an asset equivalent to real estate properties. Conversely, there are certain events where a tax can be incurred.
- Users are encouraged to pay taxes after selling a cryptocurrency for long-term or short-term profit.
- Exchanging a cryptocurrency for another. For instance, trading bitcoin to purchase Ether.
- Using cryptocurrency to purchase items, including grocery shopping. The tax will depend on the value of the cryptocurrency at the point of purchase.
- Selling out your cryptocurrency for fiat currency.
- Receiving payment, perks, or bonuses with cryptocurrency.
- Mining cryptocurrency, which is considered a means of self-employment.
- Traders will pay a capital gain tax on the tokens received from staking cryptocurrency.
- Airdrops and hard forks: Users often benefit from these, especially startups or companies introducing new features and upgrades. You can read this article to learn more about blockchain forks.
Non-Taxable Crypto Events
Below are crypto events that don’t incur tax on users.
- Buying and holding cryptocurrency.
- Swapping coins and tokens.
- Gifting cryptocurrencies
- Donating crypto to charitable organizations.
- Moving crypto from one wallet to another without exchanging the digital currency.
Conclusion
Crypto tax calculators assist users in estimating actual cryptocurrency gains and losses. It allows financial accountants to minimize errors and comply with tax regulations. However, consider evaluating the software discussed in this article and prioritize privacy and security when choosing one.
