Although they are potentially confusing, cryptocurrency taxes come with the territory of buying, selling or trading cryptocurrencies such as Bitcoin, Ethereum or Solana. Whether you’ve filed these taxes on your own or you’ve sought out the help of a professional, leaning on the right software can make a huge difference in the process.
Although there are many cryptocurrency software options on the market, you may not be aware of the benefits that accompany them. Here are only a few reasons to consider using software to help you calculate your upcoming cryptocurrency taxes.
Compiles Data Across Sources
Every time you sell, trade or dispose of your cryptocurrency, it requires standardized, organized data for reporting your taxes. While this may not seem like a huge undertaking, it can be time-consuming to sift through hundreds or even thousands of transactions one at a time to collect the appropriate data from all of your cryptocurrency sources.
When you use cryptocurrency software, it automatically pulls the relevant data from all of your cryptocurrency transactions and organizes it. This collection occurs across data sources including wallets, exchange accounts, staking rewards and airdrops.
Establishes Digital Asset Price
Once the above data has been aggregated, cryptocurrency software establishes the cost basis and holding period of your cryptocurrency assets. These two pieces of information are essential in determining your taxable income generated from your cryptocurrency transactions.
Tracks Portfolio Performance Throughout the Year
If you’re curious about how your cryptocurrency portfolio is evolving at any point in the year, you can refer to your portfolio performance dashboard within the cryptocurrency software. This provides you with real-time insights into your potential tax liability. Portfolio dashboards are a great way to increase visibility and reduce the chances of being blindsided by unexpected liabilities when your taxes are due.
Assists In Implementing Tax Minimization Strategies
Taking the above dashboard one step further, cryptocurrency software provides you with insight into which tax lot ID method can minimize the tax impact of your cryptocurrency activity.
For example, tax-loss harvesting is a strategy designed to limit the recognition of capital gains. In tax-loss harvesting, securities are sold at a loss to offset taxes on recognized capital gains.
Other tax lot ID methods include LIFO (last in, first out), FIFO (first in, first out), and HIFO (highest in, first out). By leveraging the offerings in the software, you can use Specific Identification to determine the most advantageous tax lot ID method for your activity.
Schedule a Complimentary Assessment with Founder’s CPA
Our team of cryptocurrency experts understand that navigating cryptocurrency taxes can be overwhelming and complicated. The easiest way to file your crypto taxes is by working alongside one of our knowledgeable team members.
We encourage you to take advantage of our complimentary consultations to learn more about how we can help you during this upcoming tax season and beyond!