If you are a crypto trader or are an aspiring one, you probably have the gist of how cryptocurrencies and crypto taxes work. You are probably also aware that it is the arduous process of filing crypto taxes that makes most people reluctant to get involved with virtual currencies in the first place.

It is no secret that cryptocurrencies have taken the financial world by storm. Given the unique nature of these virtual currencies, the interest and confusion around this subject are understandable. People have now gradually begun to entertain the idea of becoming crypto traders.

What makes Cryptocurrencies Unique?

These virtual currencies exhibit a world of difference from conventional fiat currencies like the U.S Dollar. Cryptocurrencies are unique due to the following:

Crypto transactions are irreversible. In other words, your purchase or sale cannot be undone once you confirm it, irrespective of your actions. No bank or central authority can be of assistance in this case.

Crypto traders do not need permission to use virtual currencies. You do not have to report to your local bank or any other authority to start carrying out transactions.

Crypto transactions are pseudonymous. The cryptocurrencies you send and receive are on addresses that are made of multiple characters. It is impossible to identify the real owners of these accounts.

Crypto transactions are immune to external influence. As mentioned earlier, virtual currencies are not backed or controlled by any Government or bank. Their immunity to external influence is what makes them mostly impenetrable to security attacks.

Are you liable to pay Crypto taxes? Let's find out.

Step 1 - Determine Your Cost Basis.

It is essential to understand the process of filing crypto taxes.

The first step is to determine the cost basis of your holdings.

Essentially, the cost basis is how much money you put into buying your property. For crypto assets, it includes the purchase price along with all other costs associated with purchasing the cryptocurrency.

These additional costs typically include transaction fees and brokerage commissions from the exchanges you purchase crypto.

To calculate your cost basis, you would have to do the following:

(Purchase Price of Crypto + Other fees) / Quantity of Holding = Cost Basis

Step 2 - Subtract Cost Basis from Fair Market Value

The second step in determining your capital gain or loss is to merely subtract your cost basis from the sale price of your cryptocurrency.

Sale price is also often referred to as the Fair Market Value. The equation below shows how to arrive at your capital gain or loss.

Fair Market Value - Cost Basis = Capital Gain/Loss

What Happens if I Don't Pay My Crypto Taxes?

Many traders are convinced they can get away without paying crypto taxes due to the anonymous, decentralized nature of Blockchain and crypto transactions.

This is not true. While the Internal Revenue Service (IRS) has been dealing with crypto taxes slowly, they have been taking action against crypto tax defaulters.

The IRS' win against Coinbase, which required the popular exchange to turn over records for individuals who have $20,000 or more in any transaction (buy/sell/ or receive) is an example.

Seeing how it is a futile endeavor to avoid filing crypto taxes, you can simplify the process by using a crypto tax calculator. Here are some of the best crypto tax software on the market today.

The best crypto tax software you can ever hope to use

ZenLedger

Launched very recently, Zen Ledger is an easy to use online cryptocurrency tax calculator that has encompasses just about everything you need to file your crypto taxes.

ZenLedger may not have some of the fancy features that some of its competitors do. Still, its user-friendly interface significantly makes up for it, thereby making it crypto tax calculator worth looking into.

It has a few intriguing features to its credit. These features include Audit report, CPA access, FIFO/LIFO designation, crypto as income, ICOs & airdrops, Tax-loss harvesting, FinCEN/FBAR alert, Turbo Tax, and unlimited integration exchanges,

Cointracker:

CoinTracker is one of the best crypto tax software and crypto-asset trackers out there.

The Cointracker platform can automatically synchronize your asset balances and transactions from your exchange accounts. Its interface shows you your digital assets and of course, their respective trading history.

To simplify things for you as a crypto trader, it makes use of a unified dashboard. In addition to this, it provides a performance tracker, which shows you a crystal clear picture of your crypto investment performance over a given period.

myCryptoTaxCalculator

myCryptoTaxCalculator is an excellent crypto tax software. It can be used to fill out the crypto tax forms.

myCryptoTaxCalculator can generate a tax report for you in the following steps:

Step 1: First, import all the data from your exchanges and crypto wallets

Step 2: Then, review your purchases and sales history

Step 3: Finally, generate a crypto tax report for all your transactions.

CryptoTrader.tax

CryptoTrader.tax is a powerful crypto tax software worth noting.

CryptoTrader saves you countless hours of dreadingly filling up spreadsheets.

You can import your exchanges and wallets directly onto the platform without a worry in the world. You can export your crypto tax report without hassle. Be sure to include the following documents:


  • Cryptocurrency Income Report


  • Short & Long Term Sales Report


  • IRS Form 8949


  • Audit Trail Report


  • End of Year Positions Report


  • TurboTax Direct Import


  • TaxAct Direct Import
    Its engine processes this data and runs it. You can receive a tax report at the click of a button.