Bitcoin, crypto, virtual currency — the next big evolution in currency and how it’s used to buy, sell and trade is here, and here to stay. Whether you’re already a well-seasoned crypto user or a verifiable newbie, there’s a bit of a thrill and mystique attached to using and trading Bitcoin.
That is, until the inevitable occurs and the boring, tedious underbelly of any paper chase reveals itself — filing and reporting taxes on your assets and earnings. On top of being a chore, filing your taxes can be downright stressful. And doing your taxes properly becomes even more difficult when you have any sort of complicated tax situation like reporting income from your investments, including Bitcoin.
But if you’re using Bitcoin or interested in it, we’ll hedge our bets that you’re not one to shy away from something rewarding because it’s a little challenging. You don’t have to go it on your own, either. Combine Benzinga’s guide to paying taxes on Bitcoin with the professional guidance of our expert partners and you have a solid set of resources in your corner.
Do You Have to Pay Taxes on Bitcoin?
With few exceptions, you do have to pay taxes on Bitcoin. Think of it this way: If your Bitcoin activity includes or results in what is known as a taxable event, you’re liable for taxes. Any situation in which you realize income is a taxable event.
So, this means exchanging Bitcoin to fiat currency (currency tethered to a value set by a certain government) or trading Bitcoin for another currency is a taxable event. Purchasing goods or services with Bitcoin is a taxable event, as is earning any crypto income.
To explain a bit further, the Internal Revenue Service (IRS) designated virtual currency as property for federal tax purposes. Stocks, bonds and real estate investments carry the same type of tax liability. When you dispose of, trade or sell your Bitcoin, the capital gains or losses from these exchanges are taxed at your tax bracket percentage rate.
Bitcoin you earn as income is also taxed. If your employer pays you in Bitcoin, if you are a freelancer or independent contractor who is paid in Bitcoin or you accept Bitcoin as payment for goods or services you’re selling, this is likely considered income by the IRS. You’ll pay income tax on how much your virtual currency is worth in U.S. dollars (USD).
How to Pay Taxes on Bitcoin
How do you actually pay taxes on Bitcoin? The simple answer is that you report your crypto trades on IRS Form 8949, the same tax form you’d file to report any gain or losses resulting from the buying and selling of capital assets.
The slightly more complicated answer is you need the following information to properly fill out your Form 8949:
- A record of all of your cryptocurrency trades, sales and disposals
- Date for each crypto acquisition
- Date of all trades and sells
- The Fair Market Value of your proceeds
- Your cost basis method (more on that later)
- Any gains or losses for the trade
If this sounds like a lot to keep a record of, well, it is. That’s why so many solid resources for filing bitcoin taxes are popping up as companies rush to fulfill the needs of crypto traders trying to adjust to ever-evolving standards governing virtual currency.
Luckily, as cryptocurrency becomes an increasingly popular form of currency, a set of best practices is forming around how to properly track and report Bitcoin taxes.
Like other potentially complicated tax situations, you’ll want to keep careful records of the Bitcoin you trade and earn. This means tracking Bitcoin you receive as payment for work — even if you don’t receive a tax report from your employer.
You have to track and report your capital gains and losses from trading Bitcoin. To do this, you have to choose a cost base method, or the way you calculate your gains and losses, along with keeping records of the fair market value and gain or loss (in USD) when you buy, sell or trade Bitcoin.
Best Online Tax Platforms for Crypto
An entire financial industry is sprouting up rapidly around virtual currency, complete with the heroes of tax season: virtual e-filing platforms that specialize in crypto. Take a look at our picks for the best online tax platforms for crypto.
Keeping a record of your trade history is a must, but it’s not an easy undertaking. TradeLog’s digital tax preparation software is specifically designed for active traders and investors. One of its most useful features is the ability to record, track and manage your complete trade history, including Bitcoin trades, for the entire tax year.
TradeLog takes your trade history and does the hard work for you, creating a ready-to-file tax report. Not only will it create your Form 8949, it comes ready for export to e-filing services like TurboTax. Also, it will integrate with Broker 1099-B reports if necessary, which is the report for broker trading.
TradeLog’s software deftly handles wash sale rules for taxpayers, a huge benefit to active traders and investors. While wash sales are sometimes inevitable, the TradeLog software helps you avoid wash sales with hefty tax consequences all year (not just during tax season) and helps you hone your own trading strategy.
TradeLog has a whole roster of trader-specific tax services addressing complex tax situations often left out by more traditional tax preparation software. Check them out here. Or try out its free 30-day trial to get a feel for TradeLog yourself.
Taxes can be complicated if you’re an active trader, active trading business entity or have considerations like Bitcoin or crypto holdings. But tax preparation software can simplify your reporting.
TradeLog is an IRS-complaint tax prep software designed to support active traders and alternative asset investors. Learn how TradeLog can help organize and simplify your tax return this year.
TradeLog’s IRS-compliant tax software can help active traders and alternative asset investors maximize tax refunds and avoid penalties and wash sale disasters.
- Active traders
- CPAs and tax professionals
- Wash sales concerns
- Unusual tax situations and cryptocurrency investors
- 30-day free trial
- Pro Version for tax professionals and CPAs
- Avoid unpleasant wash sales surprises
- Multiple subscription options
- Doesn’t run well on Apple Mac OS; works with Windows or some emulators
- Can only install up to 2 copies on separate devices
A user friendly platform with support to more than 7500 tokens and over 300 wallets and exchanges via CSV, API or direct connect. The ultimate tax platform for every level of crypto trading: from HODLers to High Frequency Traders. If based in the US, generate your form 8949 without a hassle or import your tax report directly to TurboTax.
We offer an easy-to-use platform with a 365-day license allowing you to generate as many tax reports as you want. ACCOINTING.com also offers an app and a dashboard to track your portfolio…anytime…anywhere.
Accointing isn’t your conventional crypto tax preparation tool — it’s an online tool that lets you manage your cryptocurrency taxes and portfolio with ease. Crypto professionals and enthusiasts can leverage this robust solution as a one-stop-shop for crypto management needs.
Accointing provides an insightful dashboard, available in both desktop and mobile, to track your performance and transactions in real-time with a breathtaking user experience. Beyond providing the easiest way for connecting your wallets through CSV or API, Accointing also supports over 300 exchanges.
The platform also doubles up as a cryptocurrency portfolio tracking dashboard. You can import all transactions automatically via Wallet address, API Connect and manual input, as well as review your historical performance and analyze your portfolio gains and losses.
Think of Accointing as an all-in-one cryptocurrency tracker and tax report generator. Its intuitive interface is easy-to-use for both novice and pro crypto holders. Anyone can access most of the platform’s free features, but tax report generation is provided through affordable subscription tiers.
- Novice and professional crypto holders
- Tax report generation
- Cryptocurrency portfolio tracking
- Easy-to-use interface
- Supports over 300 wallets and exchanges
- More than 7,500 currencies supported
- Available for desktop and mobile
- Print an unlimited amount of reports
- Helps you track your cryptocurrency portfolio
- You’ll probably don’t need all its features
EY Tax Chat
EY Tax Chat is a simple platform that allows you to handle your taxes online while getting the service that a crypto trader needs. You can get started in just 5 easy steps: answer a few questions, get a free quote, meet your EY Tax Chat pro, upload documents and authorize your filing after reviewing your return.
The platform also offers:
- Live chat support with real tax pros
- Support for complex returns
- Support for those who live and work in different locations
- A base price of $199
Because you can chat with real tax pros and never bots, you know you are getting the support and service you deserve. You can also turn to the mobile app when it’s time to submit documents and ensure that your tax pro is ready to handle your return.
Tax time is here. One of the fastest and most accurate options you can secure for your personal and business taxes comes from a modern company that’s 119 years young — Ernst and Young’s TaxChat. With this desktop and mobile app, you connect with a human Ernst and Young (EY) Global Ltd. tax professional who prepares your 2021 tax filing and e-files it for you on your schedule, eliminating the hassle of appointments, paper documents and complications.
When you use the EY TaxChat platform, you rely on a century-old company with the express purpose of “building a better working world.” General world improvements are lovely, but they are little help as April 15 approaches and your taxes aren’t done. EY TaxChat delivers a practical, reasonably priced, convenient tax prep service you can use from your phone. Read on to learn more about the benefits you get when you hire EY TaxChat to do your taxes.
- Self-employed filers
- Filers with complex investments
- Crypto and non-fungible token (NFT) traders
- People who work and live in different states
- Virtual chat feature with tax experts
- Live tax pros, not bots
- Tax experts are certified public accountants (CPAs) or IRS enrolled agents
- Unlimited advice
- Five simple steps from start to finish
- Precise match-up with a tax pro right for you
- Pricier than some DIY software solutions
If you’re looking for a straightforward, trustworthy way to accurately report your bitcoin taxes, look no further than CryptoTrader.Tax. It’s a streamlined, easy-to-use platform that demystifies filing your bitcoin taxes.
In only 3 steps, CryptoTrader.Tax can compose a reliable, accurate tax report in just minutes. It’s super simple: Import your trade information, add your crypto income date and viola — your tax report is ready for download and to be filed with the IRS. The CryptoTrader.Tax software even integrates with TurboTax and TaxAct, so you can e-file your crypto tax report with the rest of your taxes.
CryptoTrader.Tax works with every crypto exchange, meaning importing your trades using the Generic CSV Import template from another crypto platform is a smooth, uncomplicated process. And you can count on tax-professional level expertise — your crypto taxes are calculated using tried-and-true methods that reduce your tax liability and ensure accuracy.
CryptoTrader.Tax offers 4 subscription packages, although you can start your tax report for free. Subscriptions range from $49 to $299 per tax season. The main difference among packages is the number of trades you can report:
Hobbyist includes up to 100 trades
- Day Trader includes up to 1,500 trades
- High Volume Trader includes up to 5,000 trades and priority customer support
- Unlimited includes unlimited trades and priority support
All packages include live support, free report previews, unlimited report revisions, IRS Form 8949, a capital gains report, TurboTax and Tax Act integration and tax loss harvesting.
It’s no secret that taxes can be confusing — especially when it comes to crypto — and then there’s CryptoTrader.Tax, a cryptocurrency tax software platform designed to automate the entire tax reporting process. Tax reports generated by this platform are based on your historical data and can be provided to your tax professional or imported directly into your tax filing software.
The CryptoTrader.Tax product integrates with all major exchanges and platforms to make the crypto tax reporting process quick and painless. It’s as simple as connecting your exchanges, importing trades and downloading your tax reports.
CryptoTrader.Tax computes your tax liability using the same techniques tax professionals use — you can rest assured you’re paying the right amount while reducing your crypto tax liability. And signing up for an individual account is easy as entering your email, choosing a password and agreeing to the terms and conditions.
- Individual crypto investors
- Crypto tax reporting
- Crypto activity data aggregation
- Easy to sign up
- The platform may seem difficult to first understand
Trader’s Accounting is an accounting and tax preparation firm specializing in financial services dialed in to the needs of active traders. Its expertise includes Bitcoin-specific tax considerations, which protects clients from incurring further tax liabilities by incorrectly filing taxes on Bitcoin.
Trader’s Accounting offers a wide range of incredibly useful services for active traders. In addition to comprehensive tax preparation services for individual traders, it offers services to business entities. Additionally, Trader’s Accounting will consult with you to design a day trading tax strategy that works with existing tax laws to maximize your returns and minimize tax obligations.
If you recently quit trading and need guidance to dissolve your entity, Trader’s Accounting can take care of that, too. It also offers prepaid bookkeeping for 12 or more months to help you track your finances.
Trader’s Accounting offers a free half-hour consultation to new clients. Get in touch with them today to schedule yours!
Traders Accounting is a well-established tax preparation and accounting firm. It specializes in a myriad of services for active traders, including bookkeeping, business entity formation and dissolution, as well as bitcoin tax preparation. While it doesn’t have a strong digital presence, investors who prefer a more traditional experience will love its personalized approach over the automated, digital route taken by many firms today.
- Day traders
- Bitcoin investors
- People who want to set up a trading business entity
- Bitcoin tax preparation services
- Wide range of services to choose from
- Payment plans available for business entity packages
- A more traditional approach to client relationships appealing to those who eschew the digital takeover of financial spaces
- No mobile app
- Limited digital offerings
TaxBit connects you to enterprise cryptocurrency tax experiences. Whether you need to issue 1099s or report your own taxes, TaxBit’s cryptocurrency tax software unifies the process.
It connect the processes of producing and issuing 1099s with other data into completed tax reports that are ready to file. TaxBit Consumer and TaxBit Enterprise interact, so you have a seamless tax experience across all of the platforms you use.
TaxBit’s APIs make it easy to automatically bring in your data. Whether you are interacting with its tax center suites on an exchange or using TaxBit Consumer, you’ll see the real-time tax impact of your transactions across any exchange you trade on.
A software program that streamlines the tax experience for enterprises and individuals alike, TaxBit strives to simplify and unify the entire process by making every file, document and report easily accessible through an electronic platform.
Available with tailored access for both companies and consumers, TaxBit makes it easy to upload and view cryptocurrency data in real-time and enables seamless connection to over 100 cryptocurrency exchanges. Offering additional functionality such as tracking analytics, audit trail analysis and capital loss deduction claims, TaxBit is designed by industry insiders (CPAs and tax attorneys), which makes the software that much more accurate and reputable.
TaxBit is used by some of the largest regulatory agencies around the world and is considered to be one of the most trustworthy programs in the industry.
- Crypto advocates
- Anyone buying or selling cryptocurrencies on any platform
- Those interested in an electronic tax-processing platform
- Beginners and tax professionals
- Tax compliance
- Has responsive and supportive customer service agents
- Offers a free trial available
- Makes the crypto tax-filing process much easier
- Gives you an immutable audit trail
- Eases the issuance of 1099s for exchanges
- Supports most crypto exchanges
- Partners with the world’s best in cryptocurrency and fintech
- CSV file parsing that could improve (manual formatting only)
- Limited options for Auto-Sync and reporting functionality
Bitcoin Tax Law Summary
To refresh, let’s go over the general rules of Bitcoin tax laws. The IRS outlines these tax consequences for virtual currency and its use in IRS Notice 2014-21.
Bitcoin is considered property for federal tax purposes. It may also be considered a form of income. Thus, any capital gains or losses you incur when you buy, sell or dispose of Bitcoin are subject to a tax penalty. This tax penalty is a percentage set at your personal tax rate. Also, Bitcoin is subject to income taxes when appropriate. If you are paid in Bitcoin to do a job or for something you’re selling, you are typically subject to income taxes.
You are not subject to taxation when you buy and hold crypto, or when you transfer the same crypto from one of your accounts to another account.
Work Smarter, not Harder with a Digital Bitcoin Tax Preparer
The goal of making any investment is usually to see some kind of return — and while we wish you only the biggest, most tax minimized returns possible, accurately tracking and reporting your Bitcoin income is definitely a huge part of achieving this.
With a complex tax situation you should consult a bonafide tax professional to make sure you’re taking the right steps. Get in touch with any of the partners on our list today to get connected to expert advice and digital tax preparation resources and software.
Remember, tax avoidance is a criminal offense. Always seek professional, legal advice before redeeming gains in cryptocurrencies.