Most countries now require citizens involved in cryptocurrency to report taxes based on related transactions. Due to the infancy of crypto taxes, investors might find it challenging to maneuver this complex field. Luckily, several tools like software are emerging to facilitate the filing. With numerous software products in the market, investors need to look at factors like compatibility, bandwidth, and legitimacy.
Common Taxable Crypto Transactions
- Crypto payments
- Selling crypto
- Gains on crypto trading
- Converting crypto to fiat
While selecting a crypto tax software, here are factors to look out for.
With the crypto sector increasingly aligning with traditional finance, the software of your choice should allow for compatibility with specific platforms. To determine integrations with another platform, ensure the software supports API. Look for compatibility in the following areas:
Filing crypto tax mostly works through exporting data from other platforms including exchanges. Digital assets can also be purchased here https://netcoins.ca/blog/is-crypto-taxed-in-canada/ . Some software usually connects to exchanges and pulls the necessary data to minimize errors. In the absence of this feature, you will be required to download the data and upload it manually.
The software of your choice should directly interface with other software used to file tax returns. This is key, especially when you want to file all taxes at once.
Most software comes with different pricing tiers. In this case, the more expensive the tier, the more features you will get. For instance, higher pricing guarantees more integrations, bandwidth, and legitimacy. The tiers are usually allocated the price based on the number of transactions that can be processed. For individuals, you can take advantage of the free account. However, if you have a higher transaction, some software usually allows negotiating for lowering fees.
The crypto space is characterized by several scams, and tax software is no exception. It is vital to check the legitimacy of the software you are using because, in case of any errors, you will be liable if you don’t do the due diligence.
To determine the credibility of the software, look out for:
- The team behind the software
- Staff with experience in tax compliance
- Data security
- Media presence
- Updated website
- Active customer support
Crypto Tax Harvesting Ability
This feature is vital in reducing the tax burden. Due to the complex nature of crypto taxes, the software should offer a crypto tax-loss harvesting tool to guide you in understanding any unrealized gains or losses. The tool should cover all the cryptocurrencies, even the little-known ones. Like normal taxes, the software should offer room to analyze the potential tax losses and sell specific crypto holdings to create a capital loss that will offset any capital gains.
This is among the less talked about factors in selecting a crypto tax software. Although most software websites lack bandwidth information on the homepage, it is vital to inquire before purchasing. Bandwidth comes in handy when you have a lot of transactions to process. Low bandwidth is usually associated with cheap software. With many transactions, the software can crash, especially if data is being retrieved from different exchanges and wallets.
Cryptocurrency tax software eases the work of any active investors. With many different options, it’s vital to do your due diligence and opt for software that meets your needs at an affordable cost. Review the software’s compatibility, pricing, and any added perks. Remember, the best software should minimize any hassle by calculating your crypto tax liabilities within minutes.