If you get into trading cryptocurrencies, you’ll learn quite quickly that there is a lot of information to keep track of. It’s not enough to track what you’ve bought and where in cyberspace it lives. You’ll also need to know your cost basis and calculate whether you’ve gained or lost money during every cryptocurrency transaction. Tracking it all can get complicated, but there are now many software programs that can make it a lot easier to track both your investment and the tax consequences of it.

In fact, most of these programs now go beyond just tracking your data. The good ones will generate tax forms so you can easily meet IRS filing requirements at the end of the year. Software isn’t absolutely necessary if you’re a dabbler who makes only a handful of crypto transactions, but it’s a lifesaver if you make trades or purchases often. If you fall into the latter category, here’s what you need to know about and look for in a cryptocurrency software package.

What Does Crypto Currency Tax Software Do?

Sometimes the world of Bitcoin and other cryptocurrencies moves quickly. When it does, you may find yourself acquiring, selling or trading your currency frequently and across multiple cryptocurrency exchanges. Tracking it all takes a lot of time and is tedious work. Crypto software, however, can pull data from all of the major cryptocurrency exchanges and organize all of this data for you.

While retrieving data about your transactions, a good software program will also find and record the currency’s value during transactions and calculate your capital gains and losses for you at tax time based on that information.

A software platform can not only gather this information but format it in a certain way. The IRS requires taxpayers to document and report cryptocurrency information in a specific manner, and many software programs can generate a tax report for you in the exact style and format that the IRS is looking for. Good software can, for example, automatically generate a completed Form 8949 on which you need to report all of your cryptocurrency transactions.

What to Look for in a Crypto Tax Software Program?

Not all crypto tax software is equal, so it’s a good idea to make sure that the software package you choose truly does what you need it to. Absolutely look for compatibility. A good program will let you easily upload all your cryptocurrency data and link your wallets together to make completing and recording Bitcoin and other transactions seamless and easy.

It’s also helpful to choose a platform that lets you sort your cryptocurrency transactions easily into taxable and non-taxable events. This lets you take a snapshot of where you are today and see how your digital assets will affect your capital gains tax.

Reports and updates are great, but as we mentioned earlier, a truly helpful software package will not only generate tax reports but also complete tax documents for you. This feature is crucial and saves massive amounts of time when you file your tax return.

Preparing these documents alone isn’t quite enough, however, since you still need a way to get them to the IRS. As electronic tax filing eclipses paper forms, verify that your cryptocurrency tax software lets you export your tax forms to TurboTax, TaxAct and other popular tax preparation platforms. It should also be CPA-friendly if you have your taxes prepared by a tax professional each year.

5 of the Best Cryptocurrency Software Platforms

Accointing

There are several software packages to choose from, but Accointing is consistently ranked as one of the best. in addition to a clever name, Accointing offers web-based software that lets you easily track your transactions across a massive selection of crypto exchanges. It also offers tools to help you analyze your portfolio, whether you want to just skim the surface for a general inventory or take a deep dive into analytics.

Accointing also offers users several different packages at a wide range of price points so you can get what you need on a budget. The software prepares IRS forms for you and lets you print as many forms and reporters as you like.

Cointracking

coin tracking

Cointracking is an excellent platform, but it’s probably not the best choice for beginners. This particular software generates a stunning array of different reports and analyses that can greatly benefit experienced traders. Those new to the crypto game, however, may find all of the data Cointracking provides to be more overwhelming than helpful.

Cointracking not only helps you prepare your taxes but keeps a list of CPAs who work specifically with cryptocurrency. They also offer historic pricing and value data for all 10,082 cryptocurrencies.

TokenTax

If you’re new to cryptocurrency and nervous about getting your taxes right, consider TokenTax. TokenTax maintains relationships with all of the major currency exchanges, and is the only software program that works with all of the bigger players. If you do a lot of buying and selling across different exchanges, TokenTax may prove worth the money to easily track everything.

TaxBit

TaxBit is unique in that it’s the only cryptocurrency software created by CPAs and tax attorneys in addition to software developers. Because it was written by tax professionals, TaxBit leaves an extensive electronic paper trail that will back you up in the event of an issue or audit. The platform offers technical support and will also show you your current tax liability at any time so you can plan and adjust accordingly.

ZenLedger

ZenLedger’s unique perk is that it’s officially partnered with TurboTax. If you use TurboTax and ZenLedger together, you can trust that the two software programs will talk to each other at tax time and easily exchange the necessary information. ZenLedger also features a loss calculator that suggests potentially advantageous tax strategies before December so you have time to implement them. This advice is no substitute for a qualified CPA, but it can help you come up with some tax-saving strategies to discuss with her.

FAQs

How do cryptocurrency taxes work?

Cryptocurrency gets taxed in largely the same way as stock. You pay no tax when you acquire your cryptocurrency and you can hang onto it as long as you wish. When you sell your crypto, you must pay capital gains on any profit you make. But you can also claim a capital loss if applicable. If you use your crypto to purchase something, you’ve still created a taxable event. At that time you will claim a gain (or loss) based on the currency’s fair market value.

Do I still pay taxes if I only made losses on my cryptocurrency?

Yes. The IRS requires taxpayers to report both gains and losses related to cryptocurrency. In addition to being a requirement, reporting a loss may allow you to offset future gains, so it’s really in your best interest to report it.

Are Crypto to Crypto Trades Taxed?

Yes. As far as the IRS is concerned, a cryptocurrency trade is actually two transactions. The first is that you’re selling your crypto to someone else, which creates a taxable event. You then purchase more crypto. This act isn’t taxable, but the amount you pay establishes the cost basis for your new cryptocurrency.

Do I have to pay tax if I transfer crypto from wallet to wallet?

It depends. If you transfer crypto from a wallet you own to another wallet you own, you don’t have to pay tax. If you transfer crypto from a wallet you own to a wallet someone else owns, you do have to pay tax. The IRS views this as a sale.

Won’t exchanges, like Coinbase, generate my tax documents for me?

No. Some exchanges do nothing beyond serving as a marketplace. Others will give you activity reports that detail your transactions for the year but won’t prepare any IRS forms for you. The information they give you is necessary for prepping the tax forms, but you or your CPA will need to actually draft the correct IRS documents.
In most instances, it’s safest to assume that your exchange won’t provide any tax documents. It’s also been noted that sometimes the information they do provide is inaccurate, so it’s really best to use tracking software or otherwise track trades on your own. According to the IRS, the final responsibility for accurate reporting falls on you.

What is FIFO vs LIFO?

FIFO and LIFO are short hand names for inventory systems. In a FIFO system, inventory is sold on a first in, first out basis. This means old stock is sold first. Your grocery store (hopefully) does this, rotating stock so that the fresher milk is on the back of the shelf and gets sold after the older milk. In a LIFO system, the last in is the first out.
The same holds true for cryptocurrency. Most traders use a FIFO inventory, selling their oldest crypto first. Although you can use either system, FIFO typically offers the most tax benefit. A FIFO system allows you to sell long-term assets before short-term ones, since long-term gains are taxed at a lower rate.

Get Help From a Pro

If you’re investigating the world of cryptocurrency, remember that Picnic Tax is here to help. We don’t sell any cryptocurrency software, so you’ll never have to worry that our help comes with a conflict of interest. Whether you track your data by hand or use software to report your crypto activity, we’re happy to use your information to prepare all the necessary IRS documents.

Prefer to go it alone? We’re still happy to help and answer any questions if you hit a bump in the road along the way. Looking to develop a crypto tax strategy moving forward? We can help with that too. A deeper understanding of cryptocurrency and how it impacts your tax picture is just a click or call away.