You understand crypto, the blockchain, NFTs and don't need any help making trades, so you should be able to work out your crypto taxes by yourself too, right? Learn about the alternatives and find out why using a crypto tax calculator can be a smart choice for even the most clued up investors and traders.
What is a crypto tax calculator?
A crypto tax calculator is a tool that makes calculating your taxes for your cryptocurrency assets easy. You connect your accounts and wallets and the software keeps track of all of your transactions, applies fiat valuations and automatically calculates your capital gains and income tax based on the rules of your tax jurisdiction.
Some crypto tax calculators focus on yearly tax reports, Recap is more intuitive, its dashboard shows users their tax liability for the current tax year, identifying opportunities for tax optimisation and encouraging tax planning to help investors reduce their tax bill. Users have visibility of their whole portfolio and can track all their crypto assets in one place and can even view their NFTs in their own gallery to understand how they affect their crypto worth and tax position.
You can’t just rely on tax documents from your crypto exchange
It is possible to download historical reports and tax documents from most crypto exchanges. In the US many exchanges automatically send users a 1099-K at the end of each tax year, however these documents are not always reliable for reporting your taxes.
Exchanges are unable to report any of your crypto activity that happens outside of their product. This means if you use multiple exchanges and wallets then the tax report generated by them will not be accurate. You also can’t just tally up the tax distinguished by each individual report, or submit the reports together. To report correctly, all individual transaction history needs to be collated and then overall gain/loss can be calculated. This ensures that the correct cost basis is always established.
For example, Harry buy’s 1BTC on Coinbase for £20k and then transfers it to his Kraken account where he later sells it for profit. Kraken doesn’t know the acquisition cost in order to accurately calculate the gain or loss.
If Harry connected both his Coinbase and Kraken accounts to a crypto tax calculator then his capital gain would be accurate, as the calculator can find the original cost basis from Coinbase and the sale price from Kraken.
Crypto tax calculators remove the hassle of figuring out your capital gains and provide a fast, accurate calculation
So sure, you don’t need a crypto tax calculator to report your crypto taxes, it’s possible to work out your tax liability manually. But, for the majority of crypto investors, its hard and takes a lot of time. You also need to understand (and stay updated) on the tax guidance, be confident that your calculations are correct and consistent in the way you approach valuations. Crypto tax software is built to handle complicated tax scenarios and is a game-changer for crypto investors - it saves time, reduces errors and ensures compliance with even the latest tax regulations. Let’s explore the main benefits more closely.
Benefits of crypto tax calculators
Automated record keeping
The hardest part of calculating your crypto taxes is gathering together all of your transaction data; crypto tax calculators do this automatically, and lets face it - the information is presented beautifully, making it much easier to read than an excel doc!
Most crypto tax calculators ask you for read only API keys or a wallet address, and then fetch all of your activity in order to work out your tax liability. If they don’t support a certain exchange then there is normally a CSV upload as an alternative import. This can take some time when you first create an account but it only needs doing once and is then easy to keep on top of when you have additional data to add.
Massive time savings
Imagine the amount of time it would take you to collate all of your transactions, find accurate pricing valuations for all trades and then understand and apply the appropriate tax rules. With a crypto tax calculator once you have supplied all your data your taxes are calculated automatically.
Great value for money
The pricing for crypto tax reports can vary greatly, ranging from as low as £9 to as high as £300+ per year. In contrast, Recap offers yearly subscriptions starting at just £79, providing access to previous tax years for added convenience. This modest investment can offer peace of mind, save you valuable time. There’s even potential to lower your tax bill, making it a worthwhile expense.
While a crypto tax calculator is a more affordable option than hiring an accountant, it's important to note that we still recommend seeking professional tax help. Using a tax calculator can help investors avoid racking up excessive billable hours from their accountant. You can use crypto tax software to collate your data and estimate your tax liability, leaving your accountant's time focused on the final filing stages of your return. It also gives them more time to use their expertise to implement a tax strategy and identify potential savings, ultimately resulting in a more cost-effective solution for you.
High accuracy, reduced potential for error
Crypto tax calculators use complex algorithms to accurately determine tax obligations based on local rules and various factors, including the type of cryptocurrency traded, the date of transactions, and the cost basis of the asset.
By using a crypto tax calculator, you can avoid common errors that can occur when manually calculating your tax obligations, such as miscalculating the cost basis or forgetting to include transactions. Crypto tax calculators reduce the risk of errors and inaccuracies in tax reporting, which could potentially result in fines or penalties from tax authorities.
Compliance with the latest tax regulations
With the constantly evolving nature of cryptocurrency regulations, it can be challenging to stay on top of your tax obligations without professional assistance. Rules can change fast; crypto tax calculators ensure that investors have accurate and up-to-date tax information at their fingertips and using a crypto tax calculator can provide you with the confidence that you are accurately reporting your tax liabilities and staying compliant with the latest tax laws.
Conclusion: Crypto tax calculators are a necessity for crypto enthusiasts
Although it’s possible for investors with simple trading histories to be tax compliant without a crypto tax calculator, they are an extremely cost effective tool for peace of mind and a necessity for crypto enthusiasts with complex activity.
When it comes to reporting crypto taxes, accuracy is crucial and while there are various options available to crypto traders and investors, using a reputable crypto tax reporting software like Recap offers significant benefits. Yearly subscriptions start at just £79. Recap not only provides reassurance but also saves you valuable time and can potentially reduce your tax bill. With previous tax years also included in the subscription, Recap ensures a smooth and hassle-free tax reporting process.
