The year 2020 marks the start of a new decade, it’s been more than 10 years since the launch of Bitcoin. Now, there are literally thousands of new cryptocurrencies in circulation. Despite this ongoing surge in cryptocurrency, the tracking and accounting of digital currency have not been on par with the rest of the industry.

Towards the end of the 2010s, the United States Government, along with the Internal Revenue Service (IRS) issued a set of guidelines on the tax liability of crypto transactions. As the crypto market evolves, so does crypto trading and expectations are likely to change as the industry continues to develop.

What to Expect from Cryptocurrency in 2020?

Increase in Crypto Tax Awareness

The inclusion of the crypto question on Schedule 1, “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” is one that every taxpayer has to answer correctly.

Increase in Crypto Tax Planning

Since cryptocurrency is going mainstream, it will open up new ways for tax planning opportunities such as tax-loss harvesting and an increase in more crypto tax software becoming available.

Increase in Crypto Tax Software Tools

There are a large number of crypto tax software tools that aid taxpayers in calculating their capital gains and losses. Crypto exchanges do not issue reports on a cost basis, capital gain or loss, listing proceeds, etc. When it comes to accurately calculate and filing crypto activities of individuals, it is the responsibility of the taxpayer.

Crypto tax software can be used to make precise valuations on basis tracking, capital gains, and loss, record keeping, etc. Without the aid of a software, a taxpayer is more prone to errors in their tax report which could lead to the IRS breathing down their necks.

More Exchanges May Issue 1099s

As new regulations are on the horizon, we could start to see more crypto exchange platforms being mandated to provide clearer data on a taxpayer’s crypto activities. Some crypto exchanges may proactively start producing crypto trading reports to ease tax compliance.

However, if the crypto activity is spread through multiple crypto exchanges (transferring to other exchange platforms, exchanging one crypto coin for another type of crypto coin, transferring from exchanges to crypto wallets, etc.), it becomes difficult for the main crypto exchange platform to keep track and precisely record all the crypto-related activities of a taxpayer. To combat this, crypto tax software can be utilized.

What to Consider Before Choosing a Crypto Tax Software?

In recent years, the number of crypto tax software available in the market has increased due to the need for comprehensive crypto accounting. Remember that each crypto software is different and has its own pros and cons. Listed below are the factors to note when choosing a crypto tax software.

Seamless Integration

When choosing the right crypto tax software, check the number of integrations. There are 2 main types as listed.

  • Application Programming Interface (API)

This is an accurate and hassle-free way to import a taxpayer’s crypto wallet and exchange data into the tax software. Once the API key is entered, the crypto tax software will automatically download all crypto-related data pertaining to the transactions made.

  • Comma-Separated Values (CSV)

When using CSV, a taxpayer is required to download their crypto transaction history in a CSV file format and upload it to the crypto tax software. CSV imports are more time consuming than APIs.

Credibility & Legitimacy

Before selecting a crypto tax software, check the credibility of the software and the company that built it. Specifically, check for the initiatives taken to maintain tax compliance with the IRS and other crypto regulators.

The Price

Most crypto tax software come with a free trial period before charging a premium. The benefit of using a full fledged crypto tax calculator is that they include additional tools such as higher API integrations, extra bandwidth, portfolio tracking, tx planning tools, etc. However, most crypto tax software has different pricing tiers based on the number of calculations on transactions made.

What are Some of the Best Crypto Tax Softwares?

CoinTracker

CoinTracker has the ability to automatically synchronize crypto assets and transactions from all crypto exchange accounts a trader uses. After importing, the Cointracker interface displays these crypto-assets along with the trading history. One of the main benefits of this crypto tax software is that it has an in-built performance tracker that can track and estimate the growth of a trader’s crypto investment over time.

CryptoTrader.tax

This crypto tax software lets the taxpayer calculate their capital gain or losses in minutes. Known for its ease of use and simple user-interface, CryptoTrader.tax makes importing various crypto trades a breeze and supports all major crypto exchanges such as Bittrex, Gemini, Coinbase, etc.

Zenledger

Zenledger is one of the most renowned crypto tax software in the market. It allows traders to import their crypto history and calculates their crypto taxes, such as their profit and loss statements, income and donations, capital gains and losses, etc.

The additional features of Zenledger include audit reporting, Certified Public Accountant (CPA) access, accounting calculation methods (First In, First Out and Last In, First Out), airdrops, and forks, ICO support, etc.

These are just a few of the various crypto tax software available. Before choosing the right software, it is advisable to sign up for a free trial. Thereby, you can be certain that you have selected the right one.