Taxing cryptocurrencies is still a relatively new trend. As a result, individual investors may need help determining their tax liability on hundreds of transactions each year. Furthermore, the tax community needs to familiarize itself with the nature of many crypto assets.
With the emergence of several software applications to assist investors with tax calculations, here are some factors one should consider while selecting such tools.
1. Crypto integrations range from exchanges to blockchains:
One of the crucial qualities of any crypto tax software is its ability to include the variety offered by cryptocurrency exchanges, wallets, blockchain addresses, DeFi solutions, and decentralized suppliers.
Although most crypto tax software solutions cover the essential exchanges, they frequently overlook vital integrations with blockchain networks, DeFi projects, decentralized exchanges, Metaverse tokens, Non-Fungible Tokens (NFTs), and others. One of the most common tax missteps is failing to keep track of cryptocurrency transactions, which might harm you in the long term.
Another critical factor to consider is bandwidth. For example, several crypto tax software platforms will provide you with a low-cost membership. However, if you have vast transactions, those systems will fail to handle them and crash. Therefore, it is critical if you are a frequent bitcoin trader with hundreds of transactions on many exchanges and wallets.
3. Credibility & Legitimacy
It is critical to double-check a tax software’s credibility and legitimacy. Since you will be held accountable for the amounts declared on your tax return, you should exercise caution when selecting a software provider.
4. Crypto-specific reporting features:
After importing trades into your chosen cryptocurrency tax software, calculate the capital gain or loss from trading your crypto assets. Understanding whether your cryptocurrency tax tool accurately presents all the data from every transaction is crucial. You must be able to see your realized and unrealized gain or loss, asset purchase and sale dates, cost basis, and price indicators.
For you, the price may be the most critical factor. Remember that paying more for more integrations, bandwidth, and credibility is worth it. An annual volume of transactions determines the platform’s price. Use sites that provide a free account if you meet the requirements. However, be ready to pay more for a large number of transactions.
6. Additional Perks
Look for additional perks that come with the membership. Aside from gain/loss reconciliations, specific software systems include benefits such as free portfolio tracking, instructional webinars, tax planning tools, and so on. Another platform feature is the ability to ask your accountant to examine your account without disclosing your login and password. It is both handy for your accountant and beneficial to your privacy. This feature will delight your accountant, and you will save money by saving time.
It’s your responsibility to calculate your crypto earnings and losses correctly and prepare the necessary tax paperwork. By examining the factors provided in this article, you should choose a reliable crypto tax software to meet your filing standards.