Crypto activities like lending, staking, mining, minting NFTs, and trading will all be considered taxable events. Be sure to keep your crypto activities organized and well-documented to file your taxes accurately. Below we discuss the best crytpo tax software you can use to help file your taxes this year.
6 Best Crypto Tax Software January 2023
- CoinTracker: Best for mobile app tax software
- TokenTax: Best for full-service tax software
- CoinLedger: Best for user-friendly tax software
- Koinly: Best for platform integrations
- TaxBit: Best for high-volume traders
- ZenLedger: Best for comprehensive crypto accounting
|Software||Pricing Tiers||Tax Integration||Platform Integration||Available Reports|
|CoinTracker||25 transactions: free 100 transactions: $59 1,000 transactions: $199||TurboTax, H&R Block, TaxAct, Wolters Kluwer CCH||Over 300, including Coinbase, Binance, Kraken, Cash App, Robinhood, Poloniex, and KuCoin||IRS Form 8489, Schedule D, Schedule 1, and IRS Form 1040|
|TokenTax||500 transactions: $65 5,000 transactions: $199 20,000 transactions: $799 30,000 transactions: $3,499||TurboTax||86 platforms, including Coinbase, Cream, Bitpay, Celsius, Harvest, and Phantom||IRS Form 8949, international tax reports, Ethereum gas fee report, audit trail transaction report, income report, tax loss harvesting, mining and staking income report.|
|CoinLedger||100 transactions: $49 1,500 transactions: $99 5,000 transactions: $199 Unlimited transactions: $299||TurboTax, TaxAct, H&R Block, TaxSlayer||Over 430, including: Coinbase, Binance, Uniswap, Kraken, Robinhood, Crypto.com, OpenSea, Metamask, Trust Wallet||IRS Form 8949, Income Report, Capital Gains Report, End of Year Positions, Audit Trail Report, Tax Loss Harvesting|
|Koinly||10,000 transactions: free (no tax reports) 100 transactions: $49 1000 transactions: $99 300 transactions: $179 10,000+ transactions: $279||TurboTax, TaxAct, H&R Block||Over 690, including Coinbase, Crypto.com, Binance, KuCoin, Bitpanda, and LiveCoin||IRS Form 8949, international tax reports, audit report|
|TaxBit||Unlimited transactions on all tiers $50 for historical tax forms $175 for extensive tax reports $500 for CPA review||TurboTax, TaxAct||Over 500, including Coinbase, Binance, SoFi, Kraken, Okcoin, BlockFi, and Coinlist||IRS Form 8489, income reports|
|ZenLedger||25 transactions: free 100 transactions: $49 5,000 transactions: $149 15,000 transactions: $399 Unlimited: $999||TurboTax, TaxAct, and H&R Block||Over 400, including Binance, BitMex, Bitfinex, Blockchain.com, Aave, etc.||IRS Form 8949, IRS Schedule D, Unified Accounting, Tax Loss Harvesting, FINCEN 114, FBAR, and FATCA|
CoinTracker specializes in helping you complete all your crypto and NFT tax filing. It also has a portfolio dashboard that displays token prices, historical data, all your transactions, market caps, etc. Users can also take advantage of CoinTracker’s mobile app to view their portfolio and create price alerts even outside of tax season.
CoinTracker has a fee tracking feature that allows users to see the fees they’ve paid per transaction on each uploaded exchange. This can also help inform ways to reduce the tax you owe. CoinTracker will help you prepare all the tax documents you need to file and sync with software like TurboTax, TaxAct, and H&R Block.
If you’re not satisfied with CoinTracker’s service, they offer customers a 30-day money-back guarantee. One potential dissatisfaction is CoinTracker’s lack of support for advanced trading movies like margin trading, swaps, futures, and derivatives.
Pros and Cons of CoinTracker
- 25 transactions free
- 30-day money-back guarantee
- Mobile app
- Limited support for advanced trading
- Doesn’t file your taxes
Read our full CoinTracker review.
CPA Pro Tip:
CoinTracker is a good personal tax software if you do the job yourself. As a CPA, their dashboard is limiting, which can be good or bad depending on what you want. Unlike other software, if a client shares their data, a tax professional can go into your account and make adjustments. With CoinTracker, your CPA or tax preparer will only get a report.
CoinTracker makes switching between tax methods seamless, and it’s very quick when making adjustments to the data. Lastly, I really like the reports it provides. It makes it really easy for you to see how much tax you owe or save depending on the results. -Lorenzo Abbatiello, Crypto & Tax Partner @ Origins Group
TokenTax is a full-service crypto accounting firm and a tax service. Part of the benefit of such expertise is that TokenTax specializes in identifying strategies to minimize your tax obligation. The service will file your entire tax return, or if you’d like to DIY it, you can export the reports you’ll need.
If you’re a crypto user who may have filed incorrectly in the past, TokenTax has a back-tax service. They’ll help you correct inaccurate data and tax filing all the way back to 2014.
Though TokenTax only integrates automatically with 86 crypto platforms, they can upload the data from any exchange via CSV.
The pricing tiers for TokenTax run a little more expensive than its competition. Plans start at $65 for 500 transactions and go up to $3,499 for 30,000 transactions. If you have a complex tax situation or the funds to invest in a full-service option, Token Tax is worth considering.
Pros and Cons of TokenTax
- Back-tax filing to 2014
- Extensive educational resources
- Full service tax filing
- Integrates with fewer crypto platforms
- No free version or trial
- No mobile app
Read our full TokenTax review.
CPA Pro Tip:
TokenTax is a good service if you don’t want to do the job yourself. As a software, I find it to be a bit simple for me, but that may not be a bad thing for the personal user.
One of the biggest differences is that they have enterprise services. If you are a business that accepts crypto or a business within crypto, you need to be able to keep track of accounts. It’s a different mindset than the individual investor. One of the biggest benefits of TokenTax is their resources for enterprise users. -Lorenzo Abbatiello
CoinLedger is one of the most popular tax software for crypto and digital assets. It’s quite comprehensive and integrates with a lot of exchanges, offers many tax reports, and is compatible with a lot of regular tax software.
The tax forms that are included in CoinLedger’s service are:
- IRS form 8949
- Audit trail report
- Short and long-term gains report
- Crypto tax-loss harvesting report
- Income report
There is no free tier available with CoinLedger. Its first tier, the Hobbyist plan, costs $49 and supports up to 100 transactions. To unlock unlimited transactions, you’ll need to select the $300 Unlimited plan. If you aren’t satisfied with your plan or CoinLedger’s services, they offer a two- week money-back guarantee.
Its plans come with portfolio tracking. This means CoinLedger integrates with wallets, exchanges, and other crypto markets to compile a single dashboard of all your crypto assets.
Pros and Cons of CoinLedger
- User-friendly resources to organize all your information
- 14-day money-back guarantee
- Impressive customer service
- No mobile app
- No free pricing tier
Read our full CoinLedger review.
CPA Pro Tip:
When it comes to traditional crypto reporting, CoinLedger doesn’t provide any more or less bells and whistles in comparison to other software. What CoinLedger excels in are NFTs. I find this software to be arguably the best for the high-volume NFT investor. It provides visuals to the NFTs and consolidates all the data for you.
NFTs have been confusing for software to read due to the movements they have. Generally, they are minted on a third-party site and received into a wallet. In many other cases, they are purchased/sold on a third-party site, such as OpenSea. Software needs to get smart about communication between these parties in order to properly report gains/losses.
Overall, if you are an NFT investor who does volume in the industry, I’d recommend CoinLedger as your preferred software. -Lorenzo Abbatiello
Koinly is a crypto tax service that can help you automate collecting all the right tax forms for filing. It’s currently available in over twenty countries.
Free tier supports up to 10,000 transactions but has limited features. In the free tier, Koinly will not generate any tax reports for you. It’s essentially intended for you to be able to upload your transactions and explore the Koinly interface.
When you connect Koinly to the crypto wallets, exchanges, and marketplaces you’ve used, it can automatically identify whether a transaction is income from lending or staking. It can also detect futures trading. Koinly also has an error reconciliation feature that detects missing transaction data.
The tax reports available on Koinly are extensive:
- Capital gains and profits report
- Futures and derivatives gains report
- Margin trades report
- Income report
- Valuation report
- Gifts, donations, and losses report
You can export these reports to TurboTax or TaxAct to complete your tax filing.
Pros and Cons of Koinly
- Integrates with over 690 crypto services
- Free tier for testing Koinly
- International support
- No independent tool for tax-loss harvesting
- No mobile app
Read our full Koinly review.
CPA Pro Tip:
Arguably my favorite crypto software. I have a majority of my clients on this platform for one specific button, and ironically it’s a pretty simple button to incorporate into the software. That feature is sorted by “highest capital gains.”
Much of this software doesn’t allow you to sort by highest gains, which is by far the biggest time saver to get 95% of a crypto calc done. Many investors have tens of thousands of transactions, if not more. It becomes extremely problematic when you need to go through 12 pages of $4 transactions before getting to the one that can save you $50,000.
With Koinly, you can bring your highest gains all the way to the top with one button. I also want to stress that bringing gains to the top is helpful, but also bringing your largest losses to the bottom is just as important. Many issues arise on the loss side, just as much as they happen on the gains side.
Additionally, Koinly has a dashboard feature for CPAs to invite clients, keeping them all in one place. Great for managing a client base with ease.
The downside for Koinly is that they can do a better job with the user interface on the dashboard and portfolio analysis. Other software provides a much cleaner view of your portfolio and where you stand with unrealized gains/losses.
Lastly, it may be my most used crypto software, but it may be the slowest software to update when you make changes to the data. -Lorenzo Abbatiello
TaxBit is a crypto tax software company backed by PayPal Ventures and located in Utah. The service can integrate with over 500 exchanges, wallets, and marketplaces. TaxBit’s biggest draw is that if your crypto platforms are part of the TaxBit network, you can download completed tax forms for free.
Each of TaxBit’s paid plans come with unlimited transactions and are instead set apart by the additional features they offer. The introductory plan is $50 and unlocks historical tax forms. The next $175 tier provides extensive tax reports and a portfolio performance suite. The $500 tier comes with a CPA review and IRS audit support. The paid plans also have a 14-day free trial.
It’s important to note although TaxBit will arrange the forms and documentation you need, it will not actually file your taxes. You’ll need to export the documentation to another tax filing service like TurboTax or take it to an accountant.
Pros and Cons of TaxBit
- 14-day free trial
- Unlimited transactions for every plan
- Free tax forms
- No tax filing option
- Tax optimization requires an advanced plan
Read our full TaxBit review.
CPA Pro Tip:
I’ve used and known about TaxBit for a long time. They also have a relationship with the IRS to assist in audits or reviews of clients' accounts. It’s ironic that they have this relationship with the IRS because they still don’t have complete integration with DeFi.
TaxBit is an excellent solution for big enterprise clients. They received over $100M in VC funding and worked closely with some of the biggest crypto companies for their accounting needs. When it comes to personal taxes, this has lagged behind. They have thrown their resources more to the corporate side than personal.
One of the biggest advantages of TaxBit is that they offer a free service option. For a simple investor, free and easy is a good solution. If you have more than a couple of exchanges, invest in DeFi, purchase and/or sell NFTs, use liquidity pools, or invest in third-party platforms, I don’t think TaxBit is a good fit. Their strength is in corporate, not personal. -Lorenzo Abbatiello
ZenLedger provides an easy way to extract data from your crypto transactions to generate tax reports. You can import your transactions directly from a crypto exchange (over 400 of them), a CSV file, or a public wallet address to generate the report. Afterward, you can review it and make any required corrections, then submit the report to the appropriate tax authorities.
For $999 per year, ZenLedger lets you import an unlimited number of transactions, considerably cheaper than what some rivals, e.g., TokenTax, charge for the same privilege. This platform doesn't just stop at letting you generate tax reports. You can also book consultations with vetted tax attorneys and professionals– it charges $295 for a 30-minute consultation.
You can also hire tax professionals to prepare your tax reports for you through ZenLedger, starting at $3,500 per year, which is quite expensive.
If you're not okay with ZenLedger's service, the platform offers a 14-day refund policy. A major drawback of using ZenLedger is that swift customer support is only included in the most expensive pricing tier.
- DeFi/NFT support
- Free tier available
- Extra support available from tax professionals
- No free trial
- Expensive tax professional consultation
Read our full ZenLedger review.
Free Crypto Tax Software
Free crypto tax software may have some limitations, such as previews only or limited transactions, but a few free options may be helpful in preparing your crypto taxes or cross-checking other programs.
1. Crypto.com Tax
Crypto.com’s tax service syncs with several popular exchanges, such as Coinbase and Binance.US. The web app also supports wallets and a wide range of tax jurisdictions. We didn’t find a hidden cost, but several crypto platforms such as Robinhood, Swan, eToro, and others aren’t supported. Crypto.com Tax provides Excel-compatible reports but does not provide Form 1040 Schedule D or Form 8949.
Taxbit’s US-only free tier offers tax reporting for unlimited transactions and syncs with many well-known exchanges. You can also import balances and transactions with wallets. Taxbit provides 8939 tax forms as well as Excel-compatible spreadsheets. Expect limited support with the free tier if things go awry, largely limited to reading help pages.
3. Koinly Free Plan
Koinly requires a plan upgrade if you want to download your tax forms or export them to your tax software, but you can preview your taxes for up to 10,000 transactions with the free plan. You also won’t be able to view cost basis calculations, making Koinly’s free plan better suited to previews than tax preparation.
If you’re an infrequent trader, Coinpanda’s free tier may be a fit. The free tier offers tax reports for up to 25 transactions and even provides email support. Connect Coinpanda to dozens of leading exchanges and wallets to get an overview of your crypto assets, gains, and losses in one place. The free tier provides IRS forms (8949, Schedule D) as well as reports compatible with TurboTax and TaxAct.
Do I Have to Pay Taxes on Crypto Gains?Expand to learn more
Yes. You most likely will need to pay taxes on any gains from your crypto. It’s quite similar to the manner in which the IRS taxes any kind of capital gain. The IRS considers crypto property rather than a currency. If you sell crypto for a profit, you will be taxed on the difference between what you purchased it for and what you sold it for.
When filing your taxes, you’ll need to submit IRS Form 8949 and, potentially, IRS Form 1040. The IRS offers an abundance of material on how they tax virtual currency if you’d like to learn more.
Long-Term Gains vs. Short-Term GainsExpand to learn more
If you own a crypto asset for less than 365 days, it’d be taxed as short-term gains. For assets you’ve owned longer than a year, you’ll pay long-term capital gains tax rates. The holding period is calculated beginning the day after you purchase the crypto asset.
The two categories have different tax rates, and some traders may choose to sell older coins first in order to pay the long-term gains tax rates, which are generally lower. Long-term gains tax rates tend to be lower to encourage long-term investing.
Realized vs. Unrealized GainsExpand to learn more
A realized gain or profit is when your crypto investment is sold for a higher price than when you purchased it. An unrealized gain or profit is when your crypto investment has a theoretical profit that exists even though you have not yet sold it.
Unrealized gains are not taxed. So if you buy crypto and its value in the market increases, that is considered unrealized gains, and it won’t be taxed until if/when you sell. If you sold the crypto, then it is considered realized gains and subject to capital gains tax.
When talking about the crypto gains taxes you’ll owe, that only refers to realized gains.
CPA Pro Tip:
Unrealized and Realized Gains are a huge concept to understand for tax planning purposes. We will touch on tax loss harvesting later, but I can’t stress enough the importance of understanding the difference when a gain/loss is realized, it’s locked in. When it’s unrealized, the gain/loss is just on paper. It’s not yet to be reported on your taxes.
Keep an eye out on new rules and changes. This is a controversial political topic as of late to tax unrealized gains. A situation where you would see taxing unrealized gains as substantial is for C-Suite executives who hold large amounts of stock but are not selling. The government wants their piece, and they are talking about taking a share as your assets grow vs. taking their piece when you actually sell.
To clarify, this is a proposal and not a tax law. Currently, you only owe taxes on REALIZED Gains. -Lorenzo Abbatiello
2023 Crypto Gains Tax Bracket
When determining where you fall in the tax brackets, know that your crypto-realized gains count as income and should be added to any other income. Short-term gains are taxed as ordinary income, and long-term gains have a different tax bracket.
Short-term gains (ordinary income) tax brackets:
|Single Filers||Up to $10,275||$10,276 to $41,775||$41,776 to $89,075||$89,076 to $170,050||$170,051 to $215,950||$215,951 to $539,900||Over $539,900|
|Married, Filing Jointly||Up to $20,550||$20,551 to $83,550||$83,551 to $178,150||$178,151 to $340,100||$340,101 to $431,900||$431,901 to $647,850||Over $647,850|
|Married, Filing Separately||Up to $10,275||$10,276 to $41,775||$41,776 to $89,075||$89,076 to $170,050||$170,051 to $215,950||$215,951 to $323,925||Over $323,925|
Long-term capital gains tax brackets:
|Single Filers||Up to $41,675||$41,675 to $459,750||Over $459,750|
|Married, Filing Jointly||Up to $83,350||$83,350 to $517,200||Over $517,200|
|Married, Filing Separately||Up to $41,675||$41,675 to $258,600||Over $258,600|
Note that each tax bracket has adjusted slightly from 2021, by about $1,000 or so.
What You Need to File Taxes on Your CryptoExpand to learn more
To file your crypto taxes, you’ll need to fill out the IRS form 8949. You’ll need to have all the details about each asset you sold or swapped, including the dates of the transactions, the proceeds, the cost basis, and your total gain or loss.
Not every exchange will provide all these details for tax time. Typically, centralized crypto exchanges do provide the information you need to file taxes. But if you use a DEX, you may need to track your transactions or use a crypto tax software.
CPA Pro Tip:
I would start by writing down all the exchanges and wallets that you’ve used. Even if you don’t think you’ve traded anything, it’s important to consolidate all that information to know the cost basis on purchases and when you move money around. Create that list and use it as your base to know if you have a complete data set.
Traditionally, brokerage exchanges do all this work for you. These last few years make one appreciate the work brokerages do on the back end. -Lorenzo Abbatiello
Filing Taxes for DeFiExpand to learn more
If you participate in the decentralized finance (DeFi) segment of crypto, your tax situation may be more complicated. Tax software programs won’t be able to automate the collection of your transactions and portfolio history from a decentralized exchange (DEX.)You’ll need to manually compile all your transactions and calculate the U.S. dollar amount for those assets at the time of the transaction.
There are resources to help you with the process, and websites that will scan your information to help you locate all the right info. Etherscan, for example, is a block explorer that can keep track of transactions and USD value on the Ethereum blockchain. Other popular network scan tools include: DEXTools, Dexfolio, CryptoTaxCalculator, and DEX Screener.
CPA Pro Tip:
If you participate in DeFi, whether the values are significant or not, I would highly recommend using crypto tax software. Manually tracking these transactions is cumbersome and time-consuming. Use the power of technology to your advantage and have the system import all the data. This software has improved dramatically over the years and is only getting better.
For situations where data comes in incorrectly or cost basis is missing, we use firm-wide standards to correctly arrive at a value to approve on. It’s imperative that you keep good records and document the changes you make. This software allows you to make manual adjustments and take notes within the transaction to detail how you arrived at a number on a cost basis. -Lorenzo Abbatiello
When Do I Owe Taxes on Crypto?
There are many transactions in the crypto world that will create taxable income. Each type may have slightly different rules when it comes to taxes. In general, though, if you make a profit, you’ll owe taxes.
- Using crypto as payment for goods/services
- Selling crypto for fiat
- Swapping one token for another
- Earning crypto from mining
- Receiving crypto from a fork or airdrop
- Selling or buying NFTs
- Buying crypto with fiat
- Moving crypto from one wallet to another
- Depositing collateral for a loan
TradingExpand to learn more
Trading is considered a taxable event. Trading crypto is when you sell digital assets, sell an NFT for crypto, or trade one crypto coin for a different coin type. Selling your investment or exchanging it in any way for a different investment is taxable.
The profit you gain from trading is relative gains, and you will owe taxes on it. This applies regardless of what currency you’re exchanging your assets for. If you’ve traded Bitcoin for Ether, a token for an NFT, or a digital token for fiat—all instances are considered taxable events.
Let’s say you buy 1 BTC for $50,000, its market value increases to $75,000, and you sell it. That’s $25,000 in capital gains that will need to be reported on your taxes.
NFTsExpand to learn more
NFTs, or non-fungible tokens, are digital assets that can be sold and traded on the blockchain. An NFT can be a piece of art, a trading card, music, event tickets, metaverse property, etc. When you own an NFT, you own all rights, royalties, and trademarks.
There are several taxable events that involve NFTs. When minting an NFT (the initial creation of an NFT to the blockchain), that process sets the cost basis for an NFT. Selling, trading, and buying NFTs are considered taxable. And if you earn royalties from an NFT, that income is taxable.
For example, if you buy an NFT for $500 and trade for another NFT worth $700, you’ve earned a $200 (taxable) capital gain. If you create an NFT, the profit from selling it would be considered ordinary income.
Airdrops & ForksExpand to learn more
Airdrops (also called token giveaways) are when crypto tokens or coins are given away for free. This usually happens when a new coin is launched or a new project needs to draw in users. It’s often a promotional tool and sometimes only given to existing token holders.
A fork is when the code behind a blockchain is altered enough to split the blockchain and create a new coin. Some prominent examples of this are Bitcoin and Bitcoin Cash or Bitcoin Gold. Often when a new fork occurs, holders of the existing coin will be airdropped an equivalent amount of the new forked coin. Both forks and airdrops are typically treated as income for tax purposes.
In September of 2022, a fork on the Ethereum blockchain resulted in ETH holders receiving an airdrop of an equivalent amount in the new token, ETHW. Basically, anyone who held ETH on the Ethereum chain would own the same amount of ETHW on the new ETHPoW chain. Holders of ETH who received ETHW will owe income tax on the value of the ETHW at the time they received it, which will also represent their cost basis on that token in their portfolio.
CPA Pro Tip:
People don’t realize it, but NFTs can be taxed in several different ways. Not only the Mint but the average purchase of an NFT is a taxable event. You generally need to swap ETH, Solana, Elrond, etc. to purchase an NFT, so it is no different than an exchange.
NFTs can also provide passive income. In these instances, the rules are so vague, so you have to use your best judgment. If you are creating a steady passive income stream off of renting your NFT, that would be considered income. I always say try and relate the transaction to a normal fiat transaction. If you’re renting out an NFT for a fee, then that should be treated similarly to renting any other type of property. -Lorenzo Abbatiello
CPA Pro Tip:
Airdrops are basically free money. If someone came and dropped cash to you on your doorstep, technically, the IRS would want you to report that as income. It is no different with crypto. You saw this a lot for ETH holders and Bored Ape Holders.
There is a big argument that you shouldn't pay taxes until it’s sold, but I would consult with your CPA before going down that road. If there is a value for the asset when received by the airdrop, that would be the basis used for reporting it as income. -Lorenzo Abbatiello
LendingExpand to learn more
Crypto lending is when users deposit their currency to be lent out in exchange for regular interest returns. The interest you earn is considered income and is thus taxable. If you take out a crypto loan, it is considered non-taxable. If you use your crypto loan for investment or business reasons, you can write off your loan interest fees.
If you decide to lend ETH for example, and earn $50 in interest during the tax year, you would report that as $50 of income.
BorrowingExpand to learn more
Crypto borrowing can be an extremely beneficial tool for investors looking to leverage their crypto holdings or pull liquidity out without creating taxable events. Please note that crypto borrowing has its disadvantages as well.
This market is very new and has its hurdles when borrowing against your crypto. With the market volatility quite high in the crypto market, there is a high risk of liquidation. It is a risk to consider when deciding to borrow against your crypto. This is a conversation we recommend you have with a CPA or tax professional before committing to leveraging your money.
CPA Pro Tip:
Many of my clients this year have decided to borrow against their appreciated crypto holdings instead of selling. This effectively allowed them to pull liquidity out of their holdings without creating a taxable event. Let me explain how this works.
The client invested $5,000 in 2014 in BTC. Currently, the Market Value of the BTC is $3M.
The client uses a lending platform to borrow against his BTC. The platform required my client to put up collateral in order to get liquidity. (Similar to a mortgage, put down 20% in order to get the full amount).
With Crypto, however, most platforms will allow you to pull out 50% of your collateral. So in order to borrow $500k, you must put up 1M. The risk on this transaction is if BTC falls 50%, which it has, the platform will call in the loan and take all your BTC to repay back the loan.
I’ve seen many of my clients get their loan called in, realizing losses when borrowing off their Crypto, so I don’t recommend doing this without having liquidity on the side to save the deal if the market were to fall. Additionally, the interest rates of crypto loans are very high. I’m all in on supporting the crypto space; however, when doing transactions like this, I recommend at the least evaluation fiat borrowing options as well. -Lorenzo Abbatiello
StakingExpand to learn more
Staking is when users who own crypto dedicate their assets to the proof of stake consensus. It’s collateral for the blockchain to verify and validate transactions. When you stake your assets, you are considered a transaction validator and will earn rewards.
Those rewards are similar to interest and will be taxed as income. The US dollar value of those crypto rewards is based on the market value of the coin the day you received the reward. If you stake $50,000 of your BTC funds and the return for your rewards is 5% per year, you’d earn $2,500. That $2,500 would be reported as income on your taxes.
If you stake $50,000 of your BTC funds and the return for your rewards is 5% per year, you’d earn $2,500. That $2,500 would be reported as income on your taxes.
CPA Pro Tip:
Staking rewards can be taxed in several ways. You must look at the entirety of the transaction to determine how they are taxed. Staking can be earned passively or actively.
If you put your crypto on a platform and earn a straight interest in return for providing your crypto to the platform, this is considered “interest income,” and you would pay income tax on these monies no matter how long or short you’ve held the assets. It is considered income, not capital gains, so short and long-term doesn't matter.
Secondly, there are certain platforms where you earn rewards for actively participating in a project. In this instance, there is an argument that this is work. You may need to invest your money or have monthly expenses to keep the ball rolling. In this situation, there is an argument that the staking income is business income.
Please consult with a CPA or tax professional before taking this stance for staking income. -Lorenzo Abbatiello
Crypto PaymentsExpand to learn more
If you are paid in cryptocurrency, you will need to file and pay income taxes. But if you received crypto payments for your business, it can be taxed as business income instead. This also opens you up to business-related deductions.
The income tax will be based on the value of the crypto when you receive it. That initial value (the cost basis) is also used to measure any gains or losses when you convert the currency to fiat.
This one is pretty straight forward. If someone pays you $100 worth of BTC, you would report $100 in income, even if the value of that BTC has increased to $200 when you file.
The only complexity that may arise is swapping it to USD. During the time you receive BTC, hold it and then swap to USD, there may be a change in price. You would report a capital gain or loss for the change in price during the hold period.
Crypto Mining RewardsExpand to learn more
Crypto mining is when you validate transactions on a blockchain network. New coins are generated to reward the miners. It takes quite a bit of computer power to successfully validate crypto transactions to the blockchain. If you participate in mining, you may be subject to an income tax from the mined currency and a capital gains tax when selling or trading that mined currency.
You may report your mining earnings differently depending on whether you are a hobbyist or a business miner. If you mine crypto fairly casually in your free time, your activity likely falls in the hobbyist category. This means the income you earn from mining will be reported as other income on Form 1040. You can also deduct related expenses as itemized deductions on a Schedule A.
If you mine crypto as a full-time business, your income and expenses will be reported on your Schedule C form. You will also have to pay self-employment tax on your mining income. Any deductions related to mining can be added as business deductions.
If you mine 3 BTC when Bitcoin is worth $30,000 each, you’ve earned $90,000. You’d then report that $90,000 as income on your taxes.
If you mine 3 BTC when Bitcoin is worth $30,000 each, you’ve earned $90,000. You’d then report that $90,000 as income on your taxes.
CPA Pro Tip:
Crypto mining is considered a business at the end of the day. You have all the resources and deductions available to you that any business owner would have. Depreciation is a huge factor with crypto minors and an amazing tool for tax planning. I often compare the Bitcoin mining industry to the Real Estate industry.
I also would like to add a factor many bitcoin mining clients often miss. You must always consider the capital gains/loss side of conversion as well. Yes, when you receive the rewards, it's income, but you must also calculate the change in the value of the BTC when you ultimately sell to USD or convert to another crypto. -Lorenzo Abbatiello
PerpetualsExpand to learn more
Perpetual contracts allow someone to buy or sell a crypto asset at a predetermined date for a set cost. With perpetuals, there is no expiration date, and they can be held for an indefinite amount of time. You can also sell or trade perpetual contracts.
Taxation for perpetuals has a special rule called the 60/40 rule. 60% of perpetual contract capital assets are taxed as long-term gains, while 40% are taxed as short-term gains.
Let’s say you order a perpetual contract of 1 BTC at $50,000 and one day the market price of BTC is $57,000. You can then choose to sell the contract and profit $7,000. 60% of the profit you gain from the sale will be taxed as long-term and 40% as short-term gains.
How to Minimize Crypto Taxes
Like with any tax system, there are opportunities to apply deductions and reduce the amount you owe for crypto taxes. There are also a few strategies for the way you invest your crypto that can lower the amount you owe.
Tax Loss HarvestingExpand to learn more
When you sell crypto or an NFT, you either make a profit (gain), or you lose money (if it’s worth less than when you bought it.) When it comes to taxes, selling at a loss can offset the taxes you owe for gains. You can also buy back the asset for gains later on.
When you sell assets at a loss, you can deduct the net capital losses from your net capital gains. Tax loss harvesting will reduce your overall capital gains, which then lowers the tax rate you’ll pay. For example, if your total capital gains were $30,000, but your total capital loss was $10,000, your total taxable capital gains would then be $20,000.
Similarly, some choose to utilize a wash sale strategy to offset their capital gains. A wash sale is when you choose to sell an asset as a loss and then repurchase it. This allows you to still own the assets but benefit from a capital loss deduction by selling them. The IRS bans taxpayers from deducting losses from wash sales for traditional investments, but no such rule exists yet for cryptocurrency.
CPA Pro Tip:
Tax loss harvesting is the cheapest and easiest tax planning you can do. Currently, wash sales do not exist in crypto, and that should continue according to the proposed tax bill.
I highly recommend that you meet with a tax professional towards the end of the year and review all your holdings. This is where crypto tax software comes in handy. There are two factors to consider before pulling the trigger on a tax loss harvesting strategy. The first is to understand your short and long-term gain/loss implications, and the second is deciding on your tax method (LIFO, FIFO. HIFO). -Lorenzo Abbatiello
Gifting/DonatingExpand to learn more
Like with traditional taxes, you can deduct donations from your crypto taxes. If you donate crypto to a nonprofit organization, you’ll receive a deduction for the value of the crypto when you donate it. You also don’t have to pay the capital gains tax you’d have owed on the crypto if you sold it before donating.
For example, let’s say you purchased BTC for $10,000, and it’s now valued at $30,000. You could sell it for a $20,000 capital gain (you’d owe taxes on that gain) and then donate it for a $30,000 write-off. Or you can just donate it directly and leave with a $30,000 write-off.
Deduct Transaction FeesExpand to learn more
Most crypto fees are tax deductible—trading fees, conversion fees, withdrawal fees, borrowing fees, and deposit fees.
The crypto fees you pay on transactions will be deducted from the taxes you owe by being added to the cost basis. If, for example, you buy an asset for $1,000 and pay $20 in fees, your cost basis would then be $1,020. When you later sell the asset for $2,000, your taxable capital gain would be $980. The fees you paid count towards the initial purchase price, which lowers your taxable profit by $20.
Hold Long-TermExpand to learn more
You aren’t taxed for crypto assets that you simply own. Once you sell them, you’ll be taxed for the profit. Holding an asset for less than 365 days makes the profit a short-term gain. Over 365 days, your asset is then considered a long-term gain.
Long-term gains are taxed at lower rates (between 0%-20%) than short-term gains (10%-37%.) Holding your crypto taxes for longer than a year can reduce the amount you’ll owe in taxes. In general, it’s better to consider long-term investments over short-term trading. Looking at the history of the value of your assets will matter, too, when deciding which assets to hold or sell.
Specifically, there are two different methodologies for holding and selling your assets that can affect your taxes. If you choose to sell the oldest assets first, it would be considered First-In-First-Out (FIFO.) Or you could choose to sell the most recently acquired assets, a method called Last-In-First-Out (LIFO.)
If you compare the cost basis for when you purchased each asset, you can decide to sell either FIFO or LIFO for a lower capital gain (whichever has the lower cost basis.) A lower capital gain will mean a lower tax obligation.
Use Crypto IRAsExpand to learn more
A crypto IRA allows users to invest cryptocurrency into a retirement savings account. IRA deposits are not taxed, and neither are the gains from an IRA account. Your contributions are also tax deductible.
Should You Hire a Crypto CPA?
A crypto CPA is a certified public accountant who specializes in cryptocurrency. It can be tricky to understand how taxes work for your crypto portfolio, and a CPA can help ensure you file correctly. If figuring out your taxes for a year of crypto trading, mining, and lending seems intimidating, it may be best to leave it to the experts.
Many CPAs are unfamiliar with the complexity of crypto taxes. If you choose to hire one, you’ll want to ensure they specialize in digital currency. When reaching out to potential accountants, Inquire about their experience with crypto and ask specific questions about the crypto tax laws. If they own crypto themselves, that’s a good sign they are invested in understanding crypto taxes.
If you run a business related to crypto or earn your primary income in digital assets, make sure your CPA is well-versed in business-related tax procedures and advanced trading outcomes.Some of the tax software services we recommended can connect you to an experienced CPA. CoinLedger, for example, has a database of crypto tax accountants for anyone to utilize. You’ll find a similar resource from Koinly.
You can also search online or on social media for crypto accountants in your area. If you’re a part of a crypto community on Twitter or Discord, that can be a good place to find a recommendation.
Final Thoughts on Crypto Taxes
Most of your crypto activity will be subject to either income taxes or capital gains taxes. There are a number of ways to reduce what you owe and invest in low-cost strategies. Even if you don’t owe taxes on some of your crypto actions, you will still need to report it.
Tax software can help automate this process and even support you in the event of an IRS audit. It’s best to remain familiar with your crypto portfolio and the tax rules that may apply. Then you can make strategic tax-reducing decisions throughout the year.
Frequently Asked Questions
Do I Need to Report Crypto to The IRS?Expand to learn more
Yes. Any income or capital gains you earn from crypto assets will need to be reported to the IRS. Most software will be able to walk you through everything you’ll need to report, but doing research ahead of time and keeping records is a good idea.
Do I Pay Taxes on Crypto if I Lost Money?Expand to learn more
No. You only pay taxes for gains from your crypto. That said, you do still need to report your crypto losses in order to qualify for tax deductions. Losses can be deducted from your taxable income.
How Much Does The IRS Tax on Crypto?Expand to learn more
The IRS can tax up to 37% of your crypto gains, depending on your income level. Tax rates increase with income and differ depending on your filing status. If you are single and make $41,675 or less, you’ll be taxed 0% on your long-term gains. Check out the tax brackets above to learn how much your crypto will be taxed.
How Much Do I Have to Make in Crypto to Report to The IRS?Expand to learn more
The IRS requires any crypto traders who have sold, traded, or disposed of crypto in any way. If you only purchased crypto, you may not have to file. If you aren’t sure if your crypto portfolio qualifies, consider consulting with an accountant.
Lorenzo has been in the cryptocurrency industry as a professional and investor since 2016 serving hundreds of crypto clients and businesses. Some of the sectors which Lorenzo focuses on today are Alternative Tax Planning, Trust and Estate Taxes, PR Act 60, and NFT/Crypto taxation and compliance. He is currently a crypto and tax partner at Origins Group.