Since the emergence of Bitcoin in 2009, crypto has become a global buzzword. This market is now well below its all-time high of November 2021, but cryptocurrencies are still making headlines, and institutional adoption is growing. While comprehensive laws are still in the works, national tax administrations like the IRS and the HMRC have made crypto-related activities taxable. Discover the fundamentals of tax calculations and popular crypto tax software products in our in-depth guide.

What makes cryptocurrency taxes special

Although currently subject to the same taxes, cryptographic and fiat currencies are fundamentally different. Unlike the legacy financial system, crypto coins and tokens are decentralized and function without physical bills.

• Due to decentralization, interference by a bank or local government is theoretically impossible.
• Blockchains — cryptography-protected decentralized public ledgers — ensure fairness and prevent double-spending.
• All transactions are immutable and irreversible.

The rules for paying taxes on crypto gains vary around the world. For example, individuals in Germany, Switzerland, and Singapore can avoid crypto taxes in specific cases. Meanwhile, Belarus will only start to collect taxes from crypto users in 2023.

How to pay taxes on cryptocurrencies in the US

According to Notice 2014-21, the Internal Revenue Service (IRS) regards cryptocurrencies as property. Thus, they are treated on par with shares, bonds, and other assets qualifying for the tax on capital gains. In some cases, however, digital assets are equated with income, entailing different tax liabilities.

Any crypto income gained by spending coins or tokens is a taxable event. For instance, using a crypto exchange, paying for goods or services, and trading all require compliance with US tax laws. Americans must report any crypto profits in US dollars on their tax return. Here are a few illustrations:

• If Jack buys ETH worth $12,000 and sells the whole amount in a year for $20,000, he will owe taxes on the profit ($8,000). The cost basis, or the amount initially paid to obtain the crypto ($12,000), is a crucial component of all calculations.
• If Jack uses the same ETH to buy a more valuable product or service, this event will not be tax-free, either. For instance, if the purchase is worth $15,000, the difference ($3,000) will entail tax obligations.
• If Jack swaps his ETH for another coin or token with higher value — for instance, $15,000 — taxes will also apply.

In the first hypothetical scenario, Jack makes a capital gain of $8,000. How much tax he must pay depends on two things — his tax bracket and the holding period (up to 365 days or longer). However, buying ETH is not the only way to get it. If Jack had mined the coins, received them via airdrops, or gained them as interest from lending, income taxes would still apply, depending on his filing status and income slab.

Essential calculations for crypto tax reports

Crypto tax software performs the calculations necessary to auto-fill documents like IRS Form 8949. Three fundamental tax reporting concepts apply to all taxable transactions, from trading crypto to mining it.

Fair market value

This is the price at which one can sell a specific coin or token on the open market. Depending on the user's settings, tax software denominates it in US dollars or another fiat currency.

Capital gain and loss

When a holder engages in trading or crypto sales, the result is a capital gain or loss. The logic is identical to TradFi: selling for more than the initial price brings crypto gains. If the opposite is true, the seller incurs a capital loss and does not pay tax.

If the seller holds the crypto for 366 days or more, their financial result is long-term. Short-term capital gains and losses emerge when the holding period does not exceed 365 days.

Cost basis method

The amount spent to acquire a cryptoasset, along with gas fees and other additional expenses, constitutes the cost basis, or cost price. There are three ways to calculate it:

• Average cost basis. The total amount paid to buy specific coins or tokens is divided by the total amount held.
• Specific identification. The taxpayer determines which units of crypto were sold in a certain transaction.
• FIFO, LIFO, or HIFO. Crypto taxes may apply to coins or tokens purchased first or last, or the highest-value crypto (see below).

Taxable and non-taxable events detected by crypto tax software

The best crypto tax software sorts and categorizes events automatically. Most crypto transactions generate taxable income, for example:

• Selling cryptocurrencies for fiat, such as the US dollar or the euro
• Swapping cryptocurrencies for other cryptocurrencies — for example, Bitcoin for Ether.
• Paying for goods or services in crypto
• Acquiring crypto as a result of mining, hard forks, or other complex scenarios

Tax-free transactions

Buying cryptocurrencies for fiat does not generate profit or income, so taxes do not apply. The same holds for transfers between wallets of the same holder, gifting (below the gift tax limit), and donating to tax-exempt organizations.

How to pay taxes on crypto capital gains in the US

As mentioned above, capital gains are classified based on the holding period and treated similarly to stocks. In the crypto domain, capital gains taxes apply to three activities:

• Trading one cryptocurrency for another cryptocurrency
• Selling crypto for fiat
• Buying goods or services using crypto

Applicable rates differ. Long-term capital gains (on crypto held for at least 366 days) entail some incentives and lower tax rates. The slab varies from 0% to 20%, as seen in this chart.

Short-term capital gains (on crypto held for up to 365 days) are treated like regular income and taxed according to income slabs. Here, the rates vary from 10% to 37%.

Calculation example: Short-term gains

A single man named Jack earns $60,000 annually. On May 1, he buys $1,000 worth of BTC. On April 1 of the following year, he sells his crypto holdings for $1,500.

• As the holding period is shorter than 365 days, the net profit ($500) constitutes a short-term gain. To calculate the latter, we deduct the cost basis from the sale price: $1,500 - $1,000 = $500.
• Jack's annual income, considering the holding period, corresponds to 22% short-term Capital Gains Tax. As a result, he owes $110: $500 * 0.22 = $110.

Calculation example: Long-term gains

Jack's annual income is $38,000. On May 1, he buys $1,000 worth of BTC. On June 1 of the following year, he sells these holdings for $1,500.

• As the holding period is longer than 365 days, Jack's profit constitutes a long-term capital gain of $500 (sales price minus the cost of acquiring BTC).
• Due to the size of annual income, no federal taxes apply (0% rate). If Jack earned at least $40,000 annually, he would have to pay a 15% tax rate. In our example, it would equal $75: $500 * 0.15 = $75.

Income tax

The second type of tax applies to income-generating activities beyond hodling. For example, earnings from mining, staking, and airdrops are subject to Income Tax.

• Mining income (transaction fees or block rewards)
• Earnings from staking or liquidity pools
• Earnings from DeFi (decentralized finance) lending
• Crypto received via airdrops
• Crypto received as a reward or bug bounty
• NFT minting by an artist or creator
• Token rewards from play-to-earn games

Different tax calculation accounting methods

Suppose you purchased one BTC for $18,000 on July 1 and one BTC for $20,000 on August 1. How much tax would you owe if you sold one of your coins on September 15 for $22,000? In the case of multiple transactions with the same type of assets, taxpayers can use different approaches depending on their tax-saving goals.

FIFO (First-In-First-Out)

The most common accounting method prioritized assets purchased first (chronologically). In our example, we would calculate the capital gain for BTC as $22,000 (selling price) - $18,000 (cost basis) = $4,000.

LIFO (Last-In-First-Out)

As the term suggests, this method has the opposite focus — it first counts the coins or tokens purchased last. Your capital gain is $22,000 (selling price) - $20,000 (cost basis) = $2,000. In our example, the taxable amount is half the FIFO amount.

HIFO (Highest-In-First-Out)

This approach prioritizes assets with the highest cost basis (initial price). Although it would return the same result as LIFO in our example, gains vary dramatically when hundreds of transactions are involved.

What if I make a loss?

As described above, capital gains occur when the sale price exceeds the cost basis. If your crypto loses value by the time it is sold, you incur a capital loss instead. In this case, tax-loss harvesting can help you save money by offsetting the net capital gains in a given year. However, this rule only applies to income of up to $3,000. The rest is carried forward to the following tax years.

Cryptocurrency tax software solutions 2023

Without dedicated software, calculating crypto taxes is a laborious endeavor. Users must spend hours collecting CSV files from different exchanges, formatting the data, double-checking market prices, and more. Top-rated examples of tax software work on autopilot. Instead of tedious uploading, they auto-import all your transactions from wallets and exchanges to produce ready-to-file reports. Here are ten popular examples of crypto tax services in 2023.

#1 Koinly

Koinly supports hundreds of exchanges and works in 20+ countries. This crypto tax solution is enhanced with AI to help you calculate crypto taxes in under 20 minutes. It generates downloadable reports for different groups of users: those who file taxes by themselves, use tax software like TurboTax or TaxAct, and work with an accountant. Its comprehensive tax reports listing all short and long-term disposals are "guaranteed to pass audits."

• Integration with 350+ exchanges, 100+ wallets, 6,000 blockchains, and 30+ services, including CoinLoan, Finder, and Purse.io.
• Simple import via API or CSV files and connection of wallets by entering their public addresses.
• Automatic detection of non-taxable events like transfers between one's own wallets.
• Tax calculations for futures, margin trading, and DeFi.
• Free Capital Gains preview via a special dashboard with a portfolio tracking feature showing profit/loss and capital gains.
• Downloading completed tax forms according to international tax filing standards — for example, filled-in IRS Form 8949, Schedule D.
• Flexible pricing with plans ranging from $49 per tax year (Newbie) to $279 per tax year (Pro). The choice depends on how many transactions you conduct.

#2 Accointing

This crypto tax software solution by Glassnode, featured in Bloomberg and Forbes, is more than a tax calculation engine. Suitable for dabblers and pros, Accointing lets them track the performance of the overall crypto market.

• Instant import of transactions from 400+ exchanges, 20,000+ cryptocurrencies, wallets, blockchains, services, and NFTs.
• Crypto portfolio review in real time.
• Crypto tax reports "in five clicks" for the US and international jurisdictions in three formats: FIFO, LIFO, and HIFO.
• "The most accurate and comprehensive Bitcoin and crypto tax calculator available, anywhere on the market" classifies transactions in CeFi, DeFi staking, mining, and trading (including margin).
• A holding period tool that identifies tax-saving opportunities (tax-loss harvesting) – you can see how long specific coins or tokens have been in your portfolio and trade the ones generating the most significant loss.
• Free plan for up to 25 transactions and three paid plans between $79 and $299 per tax year.

#3 TokenTax

TokenTax is tax calculation software and a full-service accounting firm. It is geared toward advanced users and enterprises, covering complicated cases like DeFi and NFTs. TokenTax also allows integration with TurboTax — one of the most popular software packages for preparing US income tax returns.

• Support of protocols, wallets, and exchanges, including all CEXs, DeFi, and NFT platforms.
• Automatic import of CSV files and manual import for ICOs and OTC crypto trades.
• Dashboard for crypto tax loss harvesting and more strategic decisions.
• Full-filling add-ons.
• Expert accounting and advanced reconciliation teams. VIP users get two 30-minute consultations with tax experts per tax year. Review of IRS inquiries is also available.
• FIFO, LIFO, and specific ID accounting.
• Multiple reporting standards: income reports, IRS Form 8949, and international reports.
• FBAR reports for the US Treasury Department – for crypto traders in the US who use international-based exchanges and hold $10,000 or more at any time during a tax year.
• Flexible pricing. Three plans from $65 to $3,499 per tax year. The Basic plan supports APIs only for Coinbase and Coinbase Pro.

#4 ZenLedger

Like TokenTax, ZenLedger mainly targets advanced users and businesses. Spanning all types of reports and forms, it also calculates non-crypto taxes. As an official TurboTax partner, ZenLedger supports quick upload of transactions between the tools. Professionals can use the ZenLedger accounting software for free (with costs covered by their clients).

• Integration with 400+ exchanges, 50+ blockchains, 100+ DeFi protocols and 10+ NFT platforms via API and CSV
• Support of mining, donations, ICOs, airdrops, and crypto income.
• FBAR tax documents, no international reports.
• Grand Unified Spreadsheet with all transaction details across wallets and exchanges with the associated calculated tax.
• Different calculation methods — FIFO, LIFO, and HIFO.
• Generation of different forms — Schedule 1, Schedule D, and IRS Form 8949.
• Tax-loss harvesting tool.
• Free plan for up to 25 transactions and four paid plans from $45 to $999 per tax year.
• Tax Professional Prepared plans for both crypto and non-crypto taxes with a 14-day refund policy.
• A fully automated crypto tax professional suite without software costs or subscriptions.

#5 TaxBit

Deloitte's selected alliance partner offers crypto tax software designed by tax attorneys and CPAs. Unlike many of its rivals, TaxBit offers beginners a free unlimited plan. Meanwhile, its Big Four-grade self-service system ensures "end-to-end tax compliance" for enterprises. The company supports over 5 million taxpayers, with over 30 million forms filed in 2022 alone.

• Integration with 500+ exchanges, wallets, DeFi protocols, NFT marketplaces, and other services via APIs and manual import of CSV files.
• TaxBit Network — an industry-wide ecosystem connecting crypto brokers and users and allowing individuals to access free text forms, income statements, and support.
• Free download of completed 8949 tax forms and free export to tax services if TaxBit supports the user's crypto platforms. This option includes unlimited transactions and wallet addresses.
• One dashboard (TaxBit UMC) for all crypto transaction data, including tax position, asset balances, and unrealized profits/losses.
• Generation, review, and filing of all relevant digital assets IRS tax forms, from 1099-B to TIN verification.
• Independent SOC 1, SOC 2, ISO 27001 certifications.
• Tax-loss harvesting.
• Flexible pricing from $50 per year (Basic) to $500 per year (Pro) for individuals.

#6 Cointracking

This crypto tax software is oriented toward diversified portfolios — aside from tax reporting, it analyzes trades and the performance of 20,000+ coins and tokens. Cointracking is a truly international crypto service with over 1.2 million active users as of December 2022, including corporate clients and CPAs. It has been featured on Bloomberg, CNN, and CNBC.

• Integration with 110+ crypto exchanges via APIs for automatic data import.
• Chart history and 25 types of charts (all interactive and customizable) for 22,448 digital assets.
• Profit and loss reports, audit reports, and analysis of both realized and unrealized profit.
• Filling out tax reports for 100+ countries (trading, mining, income, Capital Gains, and more).
• Support of FIFO, LIFO, and 11 other methods.
• Export of data for tax offices and CPAs.
• Detailed tutorials and support from the company's tax advisor team, including tax reviews.
• Free plan for up to 200 transactions with manual CSV import, one corporate plan, and three personal ones from $10,99 (Pro) to $54.99 per month billed yearly (Unlimited).

#7 CryptoTaxCalculator

This platform supports complicated scenarios, including leveraged trading and staking in DeFi. Users get a breakdown of each calculation with adjustable rules. Unlike most tax services, CryptoTaxCalculator charges customers per year, not tax year, so they can calculate taxes as far back as 2013 with a 365-day subscription. The only condition is that the total number of transactions fits the limit.

• Integration with 600+ wallets, exchanges, and DeFi platforms, including Uniswap and OpenSea, via CSV import and APIs.
• Available in 22 countries.
• Support of all types of crypto transactions, including DEXs, DeFi, staking, ICOs, airdrops, mining, and derivatives.
• Capital Gains, Income, Derivative PnL, and Trading Stock reports.
• Intelligent features like auto-categorization and matching algorithms.
• 15+ error-handling warnings like suspected missing reports and suspected burn.
• Support of different calculation methods (FIFO, HIFO, and more).
• Filling out IRS Form 8949 and 1041 S1.
• Export to TurboTax.
• Four paid plans from $49 per year (Rookie) to $299 (Trader), a free trial, and a 30-day money-back guarantee.
• Professional portal for accountants working with crypto companies.

#8 Fyn (BearTax)

Formerly known as BearTax, Fyn shines as software for professional accounting, from side projects to enterprises. Its global platform offers all-embracing compliance and easy scaling, combining high-quality reports with enhanced privacy protection. Fyn assigns tax rules automatically based on the user's country and supports hundreds of platforms and exchanges. However, it supports just two calculation methods at press time.

• Integration with 400+ exchanges, wallets, lending services, and payment providers via APIs and CSV upload.
• Tax network "for all of Web3," including indie projects and DAOs.
• Compatible with TurboTax and TaxAct.
• Smart matching algorithm for tax reduction and an audit helper.
• Tracking of over 20,000 digital assets.
• Available in 25 countries.
• Support of two calculation methods (FIFO, LIFO, with HIFO and others "soon to follow").
• Generation of auditable CSV files for future reporting.
• Free download of detailed CSV files for up to 20 transactions.
• Paid plans for crypto exchanges, wallets, hedge funds, and high-frequency traders (high-volume automated strategies with millions of transactions per year).

#9 Bitcoin.Tax

Bitcoin.Tax provides a comprehensive crypto tax preparation service in the US and Canada. Its partners – attorneys, CPAs, and enrolled agents – work with all tax forms, provide strategies, and give other advice. Users with an opened IRS audit can get a dedicated audit defense service from a tax attorney. Like other crypto tax software solutions, BitcoinTaxes has a TurboTax integration.

• Integration with popular crypto exchanges, wallets, and payment providers (the number is not specified).
• Inclusion of mining income and margin trading (Kraken).
• Support of different calculation methods, including FIFO, LIFO, average costing, and specific identification.
• Like-kind treatment (1031 exchange in the US).
• Generation of IRS Form 8949.
• Capital Gains reports, Income reports, Donation reports, Margin reports, and Closing reports.
• Export to TurboTax and TaxAct.
• Free plan for up to 20 trading transactions and three paid plans between $424.95 and $64.95.
• BitcoinTaxes plans for traders start from 50,000 transactions per year and cost between $139 and $529.
• The company also offers consultations with a tax attorney, full tax service, two plans for tax professionals, and data processing paid by the hour.

#10 Crypto.com Tax

This service rendered by Crypto.com lets users do their taxes in seconds, free of charge. It is integrated with popular platforms and wallets and offers an intuitive interface with API and CSV support. However, Crypto.com Tax does not include assistance from professional tax preparers.

• API and CSV import from all supported exchanges and wallets (their number is not specified) and an opportunity to import CSV from other sources.
• Support of 10,000+ cryptocurrencies listed on CoinGecko.
• Available in 10 countries as of December 2022.
• Straightforward user-friendly interface.
• Support of different cost basis methods (FIFO, LIFO, and HIFO).
• Different types of reports: Transaction History, Capital Gains/Losses, Income, Gifts, Donations & Payments, and Expenses.
• Free service for any number of transactions.

Is Crypto Tax Software Safe?

Legit crypto tax software is only designed to view your crypto activity and pull together the data necessary for tax purposes. Merely connecting your wallet or exchange accounts does not give the software provider access to your funds.

At the same time, cybercriminals exploit all kinds of software to seize sensitive data. Even a tax tool could be laced with malware, so choose platforms that have been independently reviewed and approved. Finally, check any API connections to exchanges to make sure the keys enable viewing rather than trading or withdrawals.