Cryptocurrency Taxes 2023: A Complete Guide

The growing interest in digital Currencies, has raised concerns over the Laws that Financial regulatory agencies of governments around the world and central banks have put in place regarding digital currency transactions.

This Post Contains

• Things You Need To Know About Cryptocurrency Taxes.
• How To Calculate Your Cryptocurrency Capital Gains.
• Top 5 Cryptocurrency Tax Calculators In 2023.

Cryptocurrency market is currently valued at $2.2trillion, that’s more than the value of Tech giants like Tesla and Meta (Facebook) combined. However, for investors based in the USA. The success of the digital currency means that they will have to pay taxes, on the profits they make from Cryptocurrency transactions.

Do you have to pay taxes on Cryptocurrency gains? As a Cryptocurrency trader or Investor in the USA. It is important you know that the IRS (Internal Revenue Service) treats digital currencies as Property rather than currency. Which means Cryptocurrency transactions are taxable by law therefore, you’re mandated to report your  Cryptocurrency transactions on your tax returns and pay tax on your Cryptocurrency gains.

   

For example If you exchange your Bitcoin (Digital Currency), to U.S. dollars (Fiat)or buy Bitcoin with U.S. dollars, it is considered to be a taxable transaction.

 

Things you need to know about Cryptocurrency Taxes

In the USA, The rules guiding Cryptocurrency taxes are constantly changing, as new regulations are being put in place every now and then. This is why you as a Cryptocurrency investor have to be up-to-date on the latest happenings about Cryptocurrency taxes.

Here are a few things you need to know about Cryptocurrency taxes in the USA.

 

1. Unlike other countries the United States’ IRS treats Cryptocurrencies as property rather than currency: In 2014 the first Notice from the IRS was released, the issuance of Notice 2014-21, 2014-16 I.R.B. 938 described how tax principles apply to digital currency transactions.  In section 4-A1 of that Notice the IRS indicated that virtual currency would be treated as property.

 

2. Declaration of Assets: You’re required to keep track of the fair market value of your Cryptocurrency assets when you receive them (Cost basis) and when you sell them. It’s important to keep a record of your assets, as when computing your gross income. You will be asked to state whether you have “At any time during 2021, did yos du receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” 

 

However the IRS recently stated that taxpayers who only purchased Cryptocurrency with real currency were not obligated to answer “yes” to the question.

 

3. A taxpayer who receives Cryptocurrency as a payment for goods or services. Must include the fair market value of the Cryptocurrency in his/her gross income, as of the date that virtual currency was received: For example, If you received a payment of 0.1 Bitcoin when 1 Bitcoin was valued at Ten thousand U.S. dollars. You’re to Input Ten thousand dollars in your gross income as the Dollar equivalent value of the Cryptocurrency (Bitcoin in this case) as at when you received payment.

 

4. Paying Tax on your Cryptocurrency transactions, doesn’t occur until you sell or exchange your Virtual Currency to Fiat (Cash) or Use Cryptocurrency to pay for goods and services: You don’t pay tax for your transactions in the Crypto world such as Gas fees, Trading fees, Sending to and receiving Cryptocurrency from other Investors. You only pay tax when you exchange your Virtual Currency to U.S dollars or use Cryptocurrency to pay for goods and services. 

 

5. Not getting a 1099 form from Cryptocurrency exchanges doesn’t mean you don’t have to pay Tax on your Cryptocurrency transactions: US Residents and the IRS receive 1099 forms from Financial institutions such as banks and stock brokers, reporting the income you’ve received during the year. 

 

However the fact that your Cryptocurrency exchange such as Coinbase, hasn’t given you a 1099 form to fill doesn’t mean you’ve escaped tax. You’ll still have to file a tax report and pay.

 

6. Paying Tax for Mining Cryptocurrency: If you mine Bitcoin or any other Cryptocurrency, you’ll have to pay tax for mining. It becomes taxable upon receiving the revenue for mining the Cryptocurrency as it’s considered a taxable event by the IRS. 

 

How To Calculate Your Cryptocurrency Capital Gains

 A capital gain or loss is the change in the value of the cryptocurrency, as at when you received it, compared to when you sold it. As long as you don’t sell the cryptocurrency, you haven’t realized a gain or loss.

 

 To calculate your capital gains you have to Subtract the Value at which you sold the Virtual Currency from the value at which you bought it.

 The formula you can use to calculate your capital gains/Losses is

 

 Fair market value at the time of sale – Initial investment (Cost basis) = Capital gain/loss

 

For example

Bernard bought 1 Bitcoin at $10000 and sold the 1 Bitcoin at $14000.

$14000 (Fair market value at the time Bernard sold his Bitcoin) -$10000 (Cost basis or Initial investment) = $4000 (Bernard’s Capital gains).

 

Judith bought 3 Ethereum at $3000 (Cost basis) and sold the 3 Ethereum at $2350 (Fair market value at the time Judith sold)

Judith’s capital loss is $650.

 

However, for active Cryptocurrency traders who are not the once in a blue moon type of Investors. It will be extremely difficult, time-consuming and inaccurate for them to calculate the Cryptocurrency tax they’re paying for the whole year. There are people who take Cryptocurrency trading as a means of livelihood and make hundreds or thousands of transactions in a year. Some Cryptocurrency traders have Traded on lots of exchanges and lost track of their transactions on those exchanges. Others have their coins spread across multiple wallets and therefore can’t keep track of everything.

 

 For this category of people, it would be more advisable to make use of Cryptocurrency tax calculators that are very efficient. So they don’t end up paying more than they’re supposed to pay for taxes, or paying less and therefore ending up on the wrong side of the law.

To avoid the hassle of Calculating your Crypto taxes, Here are the best Cryptocurrency Tax Calculators In 2023

 

Top 5 Cryptocurrency Tax Calculators In 2023

 

• Koinly

Koinly is the best Cryptocurrency tax calculator currently available for Investors. The software is easy to operate, connects easily to your wallet & exchanges. Koinly automatically imports your transaction data from Cryptocurrency exchanges & wallets, finds the market prices at the time of your trade so it can give you a tax report on your Cryptocurrency activities for a whole year. 

In short if you are looking to make your Cryptocurrency taxes a piece of cake, Koinly is a software you can trust for seamless Cryptocurrency tax calculations.

 

To use Koinly all you have to do is connect your wallets and exchanges. Then your transactions are imported directly from the ledger and you get your comprehensive tax report all in a matter of minutes.

 

Features: Easily track your Crypto assets & taxes, supports 17,000+ Cryptocurrencies, 350+ exchanges, 75+ wallets, 50+ Blockchains and 11 services such as Paxful. Allows you to export your tax report to 3rd party tax softwares.

 

Pricing

 

1. Newbie: $49 per tax year:
2. Hodler: $99 per tax year
3. Trader: $179 per tax year
4. Pro: $279 per tax year

 website: http://Koinly.io

 

• TokenTax

TokenTax is the only Cryptocurrency tax software that connects with all Cryptocurrency exchanges. The simple and automated software can import your data from any exchange, calculate all your Capital gains & Capital losses and help you generate a tax report.

 

Features: Connects to all exchanges, track trading activities, file your tax report and Tax loss harvesting

 

Pricing

 

1. Basic: $65 per tax year
2. Premium: $199 per tax year
3. Pro: $799 per tax year
4. VIP: $2,500 per tax year

website: http://TokenTax.co

 

• ZenLedger

Upon connecting your wallet, ZenLedger automatically imports, reviews and generates your tax report. The Cryptocurrency tax software supports over 400 exchanges, over 40 Blockchains and 30+ DeFi protocols.

 

ZenLedger has the best free plan among Cryptocurrency tax calculators, the free plan comes with access to tax pro but you can only track 25 transactions with the free plan.

 

Features: Supports 400+ exchanges, 30+ wallets, 40+ Blockchains and 30+ DeFi protocols, Access to a tax pro with all plans and Tax loss harvesting.

 

Pricing

 

1. Free: $0 per year
2. Starter: $49 per year
3. Premium: $149 per year
4. Executive: $399 per year

 website: http://www.zenledger.io

 

• Cointracking

With over One million active users, Cointracking is one of the most used Cryptocurrency tax calculators. Cointracking software has a variety of interesting features. Cointracking imports your transaction data from your exchanges & wallets, analyzes your transactions and generates tax reports on profit and loss.

 

Features: Tracks over 13,000 Cryptocurrencies, supports 100+ exchanges, Coin charts and trends, 

Realized and unrealized gains reports, tax exports and Security and encryption etc. 

 

Pricing

1. Free
2. Pro: $10.99 per month.
3. Expert: $16.99 per month.
4. Unlimited: $54.99 per month.
5. Corporate: Contact Cointracking for price.

website: http://cointracking.info

 

• Cryptotrader.tax

CryptoTrader.Tax automatically synchronizes cost basis and fair market value for all your transactions.

 CryptoTrader.tax allows you to import your tax report to 3rd party tax softwares After your report is generated so you can file your tax report for the IRS. 

 

Features: Free Trial, Offers customers reasonable pricing plans, tracks more than 10,000 crypto currencies, syncs through 50+ exchanges, up-to-date profit and loss reports, Tax loss harvesting tool and 14-day money back guarantee.

 

Pricing

 

1. Hobbyist: $49
2. Day Trader: $99
3. High Volume: $199
4. Unlimited: $299

website: http://cryptotrader.tax