Key takeaways
- Every digital asset holder has different requirements for cryptocurrency tax software
- Crypto tax software platforms offer a wide range of features and benefits
- Your goal is to choose the right crypto tax software for you
Are you in the market for cryptocurrency tax software? Accurately reporting your crypto transactions at tax time can feel overwhelming—but specialized tax software may make the chore a little easier. Choosing the right crypto tax software to meet your individual preferences and needs is crucial to staying stress free—and in compliance with Uncle Sam.
Keep reading to learn more selecting the best crypto tax software. Get your head around why tax software is useful for many crypto traders and investors, plus learn some beginner mistakes to avoid when choosing a software solution.
Why do you need crypto tax software?
Cryptocurrency tax software is specialized software that’s designed to track, calculate, and report tax information for cryptocurrency transactions. Digital asset transactions and tax rules across jurisdictions can each be complex, creating the need for user-friendly tools that don’t require any expertise in tax laws or accounting.
Crypto investors and traders have lots of reasons for opting to use cryptocurrency tax software. Let’s take a look at some of the key benefits of using a software solution:
- Track complex transactions: Digital asset transactions can occur across exchange platforms, digital wallets, and digital asset types. A crypto transaction may be as simple as a purchase or sale, or as complex as staking, mining, and yield farming. Cryptocurrency tax software can categorize and manage every transaction in a tax-compliant way.
- Accurately calculate tax liability: Crypto tax software typically tracks dates of purchase, cost bases, and other important information to enable users to accurately determine their net tax liability.
- Avoid reporting errors: Using a tax software solution for cryptocurrency transactions can help users to avoid reporting incorrect information when they file their taxes.
- Save time: Manually compiling crypto transactions and calculating capital gains and losses can be extremely time consuming. Cryptocurrency tax software automates many processes associated with tax information reporting.
- Comply with evolving tax regulations: The regulatory landscape for digital assets is evolving rapidly, but users of crypto tax software generally don’t have to worry about accidental non-compliance. Tax software for cryptocurrency is typically updated to stay aligned with the latest tax rules.
16 factors to consider when choosing crypto tax software
Every software solution for cryptocurrency taxes has a unique set of features—and every potential user of a crypto tax platform has individual and perhaps idiosyncratic preferences. Keep reading to explore 16 factors worth considering when choosing the right crypto tax software for you.
1. Support for complex transactions
A software platform for cryptocurrency taxes may support a variety of transactions including new transaction types that are specific to digital assets. Users can evaluate a crypto tax platform to determine its support for cryptocurrency staking, airdrops, mining, and yield farming. Some crypto tax platforms also support margin trading.
2. Integration with exchange platforms
The platform for a crypto tax solution may integrate with hundreds or even thousands of cryptocurrency exchanges. The list of supported exchanges may span across centralized and decentralized finance (DeFi)—but every crypto tax platform supports a different collection of exchanges. Prospective users of crypto tax software can evaluate which platforms support their crypto exchanges of choice.
3. Digital wallet support
Another factor to consider is which digital wallets are integrated with a crypto tax platform. Crypto tax software can support hundreds and even thousands of hardware and software wallets—but, just like with digital asset exchange platforms, not every crypto wallet is supported by every crypto tax software.
4. Multi-jurisdictional support
Providers of crypto tax software may offer support to users in various jurisdictions. Taxpayers with obligations in multiple locations can evaluate whether a crypto tax software solution is compatible with their individual geographic requirements.
5. Support for multiple cryptocurrencies
A software solution for crypto taxes typically supports many different digital assets, including non-fungible tokens (NFTs) and cryptocurrencies. Crypto holders evaluating tax software options should ensure that their chosen solution is compatible with all of the digital assets in their portfolio.
6. Tax report formats
Many different types of tax reports—like crypto income reports, end-of-year valuation reports, mining and staking income reports, and audit trail reports—are available from crypto tax software providers. But not every report format is available from every provider, creating the need for software buyers to determine if a crypto tax software solution offers the right reports to meet their needs.
7. Tax loss harvesting tools
Some providers of crypto tax software support tax loss harvesting directly within the software’s user interface. Crypto traders and investors wishing to minimize their tax obligations can prioritize the crypto tax platforms that help users to identify and capture tax savings.
8. Data back-up support
Losing cryptocurrency transaction and tax reporting data can be inconvenient and even devastating. A crypto tax software platform may provide features that back up your data and ensure that nothing important is ever lost.
9. Cost
Prospective buyers of crypto tax software need to evaluate the cost of any potential solution. The pricing structures used by software providers can vary widely, although many platforms charge users based on the number of crypto transactions.
10. Accessibility
Do you prefer to manage your crypto portfolio from your phone, computer, or another device? Crypto tax software is often desktop based, with some providers also supporting a mobile app. Users may also have the option to choose between software that is cloud based or downloaded directly to your computer.
11. Customer support
Nobody likes to struggle with using technology, which is why it’s important to evaluate the customer service offered by a crypto tax platform. Some providers give on-demand support to every user, while other platforms provide only limited service to the lowest-paying customers. Many—but not all—crypto tax platforms feature educational resources including guides, webinars, and tutorials.
12. Security measures
Security matters—a lot!—when choosing cryptocurrency tax software. Prospective buyers should evaluate the encryption and security measures employed by a tax software solution before making a software purchase decision.
13. Compliance updates
You might assume that every crypto tax software platform complies with the relevant tax rules. That may be generally true—but tax laws, especially for cryptocurrency, are changing rapidly. Users should prioritize the platforms that frequently update their software to stay in constant compliance with federal, state, and local tax authorities.
14. Customizability
Do you love software that feels tailored just for you? Some providers of crypto tax software support customization by enabling you to set personal preferences, manually adjust data, and generate specialized reports.
15. Accuracy guarantee
Accuracy is crucial when compiling and reporting information about your crypto transactions. Users can prioritize crypto tax software platforms that offer accuracy guarantees or additional support to resolve data discrepancies.
16. Community reviews
What are current users saying about a crypto tax platform? Prospective users can gather valuable information by participating in community forums and reading about others’ experiences.
Beginner mistakes when choosing crypto tax software
You’re not the first person to evaluate cryptocurrency tax software with the goal of making a purchase decision. And that’s great! Let’s learn from others who have already traversed this path by examining the most common pitfalls and beginner mistakes:
- Only caring about price: The cost to use a crypto tax platform definitely matters, but it’s not the only relevant factor. Choosing a software solution strictly because it’s the cheapest may cause you to select an ineffective or impractical option.
- Assuming that one size fits all: A friend or colleague may rave about a particular crypto tax platform, but that doesn’t mean the same software is right for you. Do your own research before making a tax software selection.
- Underestimating the complexity of your crypto transactions: Cryptocurrency traders and anyone using DeFi platforms may underestimate the complexity of their digital asset transactions. Beginners can overlook the importance of choosing a crypto tax platform that supports complex accounting.
- Overestimating your technical proficiency: Not all software for crypto tax reporting is easy to use. Another common pitfall is paying for a complex and powerful software tool and then lacking the technical skills to use it.
- Not anticipating your future software needs: What you need from cryptocurrency tax software today may differ from your software requirements in the years to come. Users who don’t consider how their software needs may change can inadvertently choose a solution with only short-term value.
Learn more selecting the right crypto tax software
Do you still have questions about picking the best crypto tax software? That’s understandable—it’s an important decision that requires plenty of research. Check out these ways to learn more about tax software platforms for digital assets:
- Watch how-to videos and tutorials
- Participate in company-sponsored webinars
- Get a platform demonstration from a sales professional
- Read software reviews
- Use comparison websites
- Participate in online cryptocurrency and tax forums
- Subscribe to cryptocurrency and tax industry publications
- Consult with a crypto tax professional
- Talk with colleagues, friends, and family
If your goal is to confidently choose the best crypto tax software for you, then you’re already making great progress. Your next step is to identify which features are most important—and then use that list of requirements to guide the remainder of your decision process.
