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Crypto tax software: What it is, benefits and drawbacks
Stay on top of taxable events triggered by cryptocurrency transactions and simplify your returns.
Unlike fiat currency like US dollars, cryptocurrencies are considered property by the IRS. You’re required to follow the same tax rules as other property transactions, which means reporting capital gains or losses after:
- Exchanging fiat currency for crypto
- Exchanging crypto for fiat currency
- Receiving rewards such as cash back and bonuses in crypto
But keeping track of every gain or loss isn’t ideal if you’re completing several transactions a day or relying on crypto banking products. Luckily, crypto investors can track, manage and calculate taxes they owe with the use of crypto tax software, with some providing easy filing tools and forms generated by tax authorities.
What is crypto tax software?
Crypto tax software records and keeps track of crypto transactions, including the price at which a cryptocurrency was originally purchased. That way, the software can calculate the capital gain or loss when the same crypto is sold.
Top software integrates with the exchange you use to manage your cryptocurrency, automatically retrieving transactional data when you execute an exchange or trade.
Most crypto tax software also offer investors a manual way to import this data. Many crypto exchanges and platforms allow you to export your transactional data as a CSV file, which can then be imported into a crypto tax software.
Most crypto software programs can also arrange transactions in a way that’s suitable for state and federal filings on Form 8949 and Schedule D.
How to compare crypto tax software
When searching for crypto tax software, weigh key elements important to make tax reporting easier on investors.
Some platforms like Koinly offer free services for long-term cryptocurrency investors that execute only a handful of transactions a year, while others like CryptoTrader charge yearly subscriptions of $300 or more for those who engage in heavier trading or transactions. ZenLedger offers freemium and subscription models.
Data import options
Most crypto tax software allow integrations with a range of crypto exchanges or platforms for automated import of relevant tax data. If you’re interested in one that doesn’t work with yours, check for alternative manual CSV data imports.
Determining the calculations your crypto tax software can perform is crucial. All good tax software should try to minimize tax liability and maximize profitability where possible. For example, tax-loss harvesting systems calculate losses and use them to offset current or future gains.
Creating tax documents
A standout feature that separates crypto tax software is the ability to complete tax documents on request. Top software should be able to generate documents like Form 8949, which the IRS requires from investors to document crypto transactions.
Number of transactions
Lower-cost software may restrict the number of transactions it can record, requiring an upgrade to a pricier plan to record more. Estimate the number of transactions you think may need to record while narrowing down your software options.
Look for tax software that prioritizes security and its reputation. Learn about specific security measures in place to protect your data, and check the headlines for breaches or hacks associated with the brand. Online customer reviews can also provide valuable information from investors in your financial situation.
Many tax software companies offer multiple ways to get support, including 24/7 toll-free numbers and live chat. If hours are limited, make sure they work with your schedule. And look for online learning resources that can help you untangle questions on your own.
Compare crypto tax software
Compare top crypto tax software by X, Y, Z to find the best for your investment and financial goals.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Why you need crypto tax software
Crypto tax software is designed to simplify your crypto transactions by tracking, managing and generating the information you need to successfully file your returns with the IRS.
- Saves time. Most software allows you to integrate with your current crypto exchange and wallet, automating the process.
- Generates tax forms. Most crypto tax software not only collects your transactional data, but also automatically completes IRS Form 8949 for you.
- Protects your profits. Top tax software uses strategies that calculate and use losses to lower your capital gains — potentially saving you money.
4 crypto tax software alternatives
Crypto-focused tax software might not be best for every type of investor or trader. Beginners may be able to make use of standard tax software, while trained professionals can be helpful for heavy investors.
- Certified public accountant. Certified accountants versed in crypto can ease the process of filing taxes, though you may be required to share a file of your crypto transactions first. Look for a good track record of dealing with cryptocurrency investments.
- Crypto tax lawyer. Similar to crypto CPAs, you can find tax lawyers that specialize in crypto tax law. A crypto legal professional can advise you on cryptocurrency holdings, take transactional data and reconcile taxes. But they can be expensive.
- Standard tax software. Rather than purchase a crypto-focused package, you may be able to use market-leading providers like TurboTax that integrate cryptocurrency features — including one that you already use for your state and federal taxes.
- File your own taxes. Individual investors and traders are free to complete their own tax forms. If you have a solid understanding of your crypto tax obligations and are willing to put in the time, this option could save you money. But you face stiff penalties for failing to accurately report your capital gains.
20% of Americans don’t think Bitcoin is taxed
Almost one in five (19.6%) Americans don’t think Bitcoin is taxed, according to an online survey of 2,040 American Adults conducted in October 2021, which might present a surprising tax season for a number of BTC investors.
Although you won’t be taxed for simply holding, investors can expect to report any sellings, tradings and earnings that have taken place within their portfolio to the IRS within the tax year. Understanding the nitty-gritty details will allow you to have a less taxing tax season.
Genders, generations and taxable Bitcoin
Men (24.5%) were almost 10 percentage points more likely to say that Bitcoin is not taxed than women (14.6%).
Gen Z (23.8%) are the leading generation that report believing Bitcoin is not taxed. Following Gen Z are Millennials (23.1%), Gen X (21.2%), Silent Gen (14.8%) and Baby Boomers (14.5%).
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