Cryptocurrencies seem to be amassing an increasing amount of attention with every day that passes, and for good reason. Cryptocurrencies are incredibly unique and exhibit a bunch of features that fiat currencies do not. Since the birth of Bitcoin in 2009, there has been a surge in the number of cryptocurrencies, crypto exchanges, and the number of ways to calculate crypto tax. Before we get into the idea of paying crypto tax, however, it is vital to understand the basics of cryptocurrencies.
What are Cryptocurrencies?
In a nutshell, a cryptocurrency is a digital asset that can be utilized as a medium of exchange. A cryptocurrency uses complex cryptography to secure crypto transactions. Cryptocurrencies are based on blockchain technology.
When you perform a crypto transaction, this transaction is included in a set of transactions or a ‘block.’ As you complete more transactions, you create blocks that are immutably linked to one another.
What are the Advantages of Cryptocurrencies?
There are a variety of advantages that cryptocurrencies have over conventional fiat currencies. Here are some of them:
They are Decentralized
Cryptocurrencies are decentralized. In other words, there’s a reduced chance of system failure or manipulation. A system that has a single point of control, such as a centralized database, is vastly more prone to failure. However, cryptocurrency transactions are authorized by a network of computers and not a single centralized body.
Cryptocurrencies are Cost-Effective
Cryptocurrencies operate on a peer-to-peer platform, which is why they tend to be more cost-effective than traditional fiat currencies.
When you are dealing with fiat currencies, you have to deal with many intermediaries with every transaction that takes place. These intermediaries carry a processing fee. However, in a peer-to-peer system, you do not have to worry about intermediaries and processing fees.
Cryptocurrency Transactions are Secure
As mentioned earlier, cryptocurrencies are powered by blockchain. Each block of transactions is connected to the other blocks in a cryptographic sequence in the blockchain. In other words, if you want to make changes in a single block, you will need to update the entire blockchain, which means that it would be impossible to hijack a system like this.
Given how cryptocurrencies employ a peer-to-peer system for transactions, crypto transactions take place in a matter of minutes. Once you confirm a transaction, you add it to a block, and this transaction goes through in seconds. This is not the case with fiat currencies where banks take a few days to process your transactions.
Which are the best Crypto tax calculators I should know about?
Given how the process of filing your crypto tax is arduous, you want to make sure that the paid or free tax software you’re using is set up to handle that. Another option you ought to consider is the idea of using crypto tax calculators to simplify this process. Here are some crypto tax calculators worth checking out:
ClearTax is known to have a crypto tax calculator that is easy to use. ClearTax lets you calculate your crypto tax from your cryptocurrency transactions. You will need to ensure you provide information that includes how and where you bought your cryptocurrency, the price at which you bought the cryptocurrency, its sale price, and the transaction fees that came with it. Once you submit this information, you can expect to receive a detailed report of your crypto tax liability.
Here is another useful crypto tax calculator that you ought to be aware of. myCryptoTaxCalculator has a fairly simple and straightforward interface, which makes it easy to use. It enables you to fill out the required details in your crypto tax forms. Once this is done, it will generate a tax report in the following steps:
- Firstly, it imports your crypto wallets and exchanges.
- Then, it reviews your entire transaction history.
- Finally, it generates a tax report based on this information provided.
ZenLedger is another excellent crypto tax calculator and finds itself on this list for good reason. It has a bunch of useful features to its credit. Here are a few of them:
- ZenLedger is known to support all the leading crypto exchanges, cryptocurrencies, and fiat currencies. Examples of these include Ethereum, Litecoin, Bitcoin, USD, and so on.
- ZenLedger seamlessly integrates your trading information and keeps the required documentation ready. This documentation includes closing reports, capital gains reports, donation reports, and income reports.
- Finally, ZenLedger makes you sure you do not end up overpaying your crypto taxes. You can expect it to produce profit and loss statements.
CoinTracker is one of those crypto tax calculators that seem to be familiar to novice crypto traders and veterans alike. CoinTracker is easily one of the most reliable crypto tax calculators on the market. It allows you to calculate your total crypto tax liability and fill out the required forms. Once you sign in to your CoinTracker account, you will need to follow these steps to create a tax report on the tax calculation page:
- Start by importing all your crypto exchanges and wallets.
- Then you will have to review all your crypto transactions.
- Finally, you will be able to download your crypto tax report and review your auto-filled tax forms.
There you have it – A list of excellent, intuitive, and easy-to-use crypto tax calculators at your disposal. While there are many crypto tax calculators on the market, these are some of the best ones to help you get started. Be sure to choose one that best suits your needs and goals.