In 2014, the IRS decided to treat cryptocurrencies like stocks and bonds rather than currencies like dollars or euros. Therefore, your assets of crypto are taxed whenever they’re sold for profit.
At the end of each tax year, you have to calculate your taxes. Moreover, you have to fill different forms. However, you can automate your tax calculations through crypto tax calculators.
In this article, we’re explaining what tax calculators are and introducing to you the best available tax calculators out there.
Accointing is the accounting, tracking, and tax optimization tool for Bitcoin and other cryptocurrencies. They are a team of passionate blockchain investors and believers that have come together to create the most comprehensive and simple-to-use taxes and tracking tool in the blockchain space.
What Are Crypto Tax Calculators?
Crypto tax calculators are tools that retrieve data from your wallets or exchanges. Afterward, it computes your profits, losses, and income based on that data. However, you can still manually input your data for calculating. After computing your data, crypto tax calculators offer fantastic features like filling your forms or importing your taxes into other integrations like TurboTax for further processing.
Most crypto traders use crypto tax calculators to automate their crypto tax reporting. Therefore, if you’re an active trader or even a usual one, you should consider using crypto tax calculators.
How Does Crypto Tax Calculators Work?
Crypto tax calculators work in several ways. The first one and the easiest and most reliable is connecting your exchange or wallet through an API key or public address. Then, the crypto tax calculator will download your data and start calculating your taxes.
The second way is uploading your transactions as a CSV file. AI will process your data and generate your taxes form as well.
The third way is manual entry. Start entering your transactions one by one, and then the crypto tax calculator will process your entered data.
Is It Safe to Connect Tax Calculators to Exchanges?
Yes. As tax calculators are connected to exchanges through API codes, you’re the one who controls permissions granted with every API key you generate. Your assets will remain on your exchange.
And if you’re worried about your data, don’t worry. Your data is securely stored encrypted on servers.
What Are Crypto Taxing Events?
Under U.S tax law, some events make your taxes apply to your crypto once those events happen. But, firstly, let’s exclude the event when you buy crypto and hold it. Because if you didn’t trade your crypto and just held it, you don’t need to pay taxes.
However, accepting crypto as payment for services is a taxable event. That comes along with many people in the world accepting to receive their wages as cryptocurrency.
Also, crypto mining is taxable. Miners pay taxes depending on the scale of their earnings.
And, of course, trading. Suppose you traded with your assets. Therefore, you must record your capital gain or loss as you’ll pay taxes for it.
Crypto Tax Forms.
There are many types of forms, but here’s the ones you need:
- Form 8949 (used for cryptocurrency capital gains and losses)
- The Form 1040 Schedule 1 (used to report income made in crypto)
How to Choose A Tax Calculator.
There are many aspects to decide which tax calculator fits you the most. Firstly, which forms are you looking to generate? And what accounting methods does the tax calculator use? As countries use different account methods, you need to find a tax calculator that supports your country’s accounting method.
Secondly, what type of trader are you? Because crypto tax calculators charges per tax season, you need to find a tax calculator that provides the best price in addition to supporting your country’s accounting method.
How to Reduce Taxes by Considering Losses?
When filing your tax return, you have a few options if you have a loss. Losses in crypto can offset other capital gains, or you can carry forward the losses to future years to offset gains in crypto or other capital gains.
You can also subtract up to $3,000 of your losses from your income. If you deduct $3,000 from your income but have more losses than that, you can still carry the rest of the losses to deduct from future years or offset future gains.
Crypto tax calculators can automate that process for you and display opportunities to lower your taxes.
Crypto tax calculators are essential. You don’t need to spend hours calculating taxes anymore when you can automate it.
It would be best if you started using a crypto tax calculator as it’ll help you focus on growing your business the most. And here’s what we think of crypto tax calculators as pros and cons:
- Saves a lot of time.
- Displays savings opportunities.
- Supports most if not all forms needed for crypto taxing.
- Can be pricey if you make enormous amounts of transactions per tax year.
Finally, we’d love to chat with you in the comments. So tell us, What do you think of crypto tax calculators? And are you planning yo use any of them?