Cryptocurrency tax calculators, or tools that help you crunch and report your capital gains and losses associated with your cryptocurrency trades are becoming much more mainstream within the cryptocurrency community. As the asset becomes more and more legitimate and more used by everyday investors, these tools will become even more important. Over the past year we have seen agencies around the world—like the IRS in the United States—start to take a more aggressive stance on the reporting of cryptocurrencies on taxes.
How Do Crypto Tax Calculators Work?
Cryptocurrency tax calculators work by integrating with all of the exchanges and other crypto platforms that you use. By connecting your exchanges, the tax calculator can read in your transaction history, and automatically build tax reports based on the information. You can also crypto received from income events like mining, staking, or masternodes into these platforms to generate the necessary tax reports.
How Do Crypto Taxes Work?
In most countries, cryptocurrencies like bitcoin are treated as property for tax purposes, not as currency. Similar to other forms of property, you incur a tax reporting requirement when you sell, trade, or otherwise dispose of your cryptocurrency for more or less than you acquired it for. This is also how the tax implications for forms of property like stocks, bonds, and real-estate work.
In other words, cryptocurrency trading looks similar to trading stocks for tax purposes.
For example, if you purchased 0.2 Bitcoin for $2,000 in May of 2018 and then sold it two months later for $3,000, you have a $1,000 capital gain. You report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This applies for all cryptocurrencies.
Can I Do My Tax Calculations By Hand?
You absolutely can do all of your gains and losses calculations by hand, and it is not that difficult. However, if you have a high volume of trades, it could become an extremely time consuming process to lookup the historical market value for each of your taxable events. Many people may turn to price history tools like Coin Market Cap to do this.
However, if you are looking to automate the process, this is exactly what crypto tax calculators are automatically geared to handle. They will do all the number crunching in a matter of seconds and provide you with a crisp output tax report.
What Are Some of the Best Crypto Tax Calculators?
Some of the top crypto tax calculators out there include CryptoTrader.Tax, ZenLedger, and Bitcoin Taxes.
CryptoTrader.Tax was founded in 2017 by cryptocurrency traders who wanted to automate their tax reporting. The company features a simplistic 5 step process from importing trades to generating auto-filled tax documents. They even partnered up with Intuit TurboTax to allow their users to complete the tax return with TurboTax.
ZenLedger is platform for accountants and comes with it’s own pricing model for them. Depending on your crypto portfolio value as well as the number of transactions you have, you will pay a different amount for their tax software.
Bitcoin Taxes is one of the longest withstanding crypto tax calculators out there, and they have been around since pre-2017. The platform takes a similar approach to calculate your crypto capital gains and losses as others listed.
Can I Write-Off My Crypto Losses?
Yes, in short, losses from your crypto trading reduce your capital gains, taxable income, and cryptocurrency taxes. Losses (and gains) accrued are also combined with gains and losses from other capital assets such as stocks. For example, if you profited $15,000 from stocks, but lost $16,000 in the cryptocurrency market, your result would be a net capital loss of $1,000. (If there are no other income gains from elsewhere.)
Now, let’s say you did not gain anything from the stock market, and your total loss for the year is the $16,000 from cryptocurrencies. The maximum amount you may claim is $3,000 on your tax filing. This does not mean you must only report $3,000, it means your tax deduction will only reflect a $3,000 loss.
Next year these losses are also applicable as carry forward losses. For example, in the year following the $16,000 loss, the remaining $13,000 that was not claimed may be reported for another $3,000 loss. You may continue to do this yearly until the net profit/loss is $0!
(Note: Capital gains do NOT rollover to the following years. Any capital gains must be reported in the year they are obtained)
Make sure you are aware of the various options you have out there when it comes to reporting your cryptocurrency taxes!