The central theses
- Crypto users may be subject to tax depending on their activity.
- The service of CryptoTrader.Tax summarizes the trades of the users and other crypto activities in a dashboard.
- The product simplifies the calculation of tax liabilities every year.
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The tax year filing deadline is approaching, which means that many crypto users will have to file their tax returns. While many believe filing taxes can be a tedious task, the process becomes even more complicated when you have to consider activities like trading, air dropping, and mining. Tax rules for cryptocurrencies have historically been quite opaque, but authorities have clarified their stance in recent years.
The position is clear: active crypto users are taxable, and government officials are watching closely.
Fortunately, there are now tools specifically designed for crypto users to make calculating tax liabilities as easy as possible. One of the most popular options on the market is CryptoTrader.Tax, which offers a level of simplicity that simplifies the process.
Calculation of liabilities on CryptoTrader.Tax
The user experience in CryptoTrader.Tax is divided into four steps, starting with an import phase. After logging in, users will be prompted to import the accounts on which they performed their crypto activity.
The service supports most of the major central exchanges, including Coinbase, Binance, Kraken, Crypto.com, and Gemini. FTX, Blockchain.com and Hotbit will be added soon.
When entering data from a central exchange, users have the option of importing a file or importing it automatically. CryptoTrader.Tax recommends the auto-import tool.
When importing, the user must obtain an API key by logging into their Exchange account. CryptoTrader.The tax contains clear instructions about how to do this How to import API keys on his blog. Coinbase is also integrated on the website. This means that CryptoTrader.Tax can automatically be granted access without logging into a separate tab.
While getting the API key is a quick process, it can take some time to load the history of each exchange depending on the number of trades and other activity. Any experienced active day trader would have to allow at least an hour or two to get all of their data.
Active DeFi users also have the option to import trades through Uniswap, Ethereum’s most popular decentralized exchange. This option requires users to enter their Ethereum address (important note: Ethereum name service is not currently supported; CryptoTrader.Tax can only read the full 0x address). Aave and Compound will also be added soon.
Support for DeFi protocols like Uniswap and Aave is a major advancement for crypto control services. As decentralized funding increases, so does the need for infrastructure that users can use to calculate their liabilities. Disposing of crypto assets through trading is one of the most common taxable activities in the crypto industry. Many of DeFi’s most active users trade on platforms like Uniswap on a daily basis. The CryptoTrader.Tax import tool can split this activity into a clear dashboard.
The second stage of the calculation process concerns “Other Transactions,” including crypto received from mining, staking, and air drop. These activities are treated differently by the IRS than trading– They are seen as a form of income rather than a capital gain. Crypto Briefing’s “Other Transactions” contained small amounts of assets earned through Coinbase referrals.
The process follows with a review phase that provides a general ledger of every transaction that the user has dealt with. The transactions originate from the user’s first interaction with each platform. The transaction history clearly shows the type (e.g. purchase, trade or mining), the platform (e.g. Coinbase or Uniswap) and the amount.
Each transaction is automatically listed in chronological order. However, there are options for adding filters depending on what the user wants to search for. The main advantage of the Transaction Ledger is the simplicity with which a user’s entire crypto journey is displayed.
Thanks to this tool, it is easy to track transactions over the years with little effort.
The service concludes by grouping all transactions in reports by tax year. Each report can be generated almost instantly, with a breakdown of the number of inbound transactions, outbound transactions and trades. Selecting “Show report” then leads to a detailed review of each tax year and the associated activities.
The transactions are clearly organized by asset and include the date of purchase, date of sale and total profit or loss. It also has options for viewing short-term and long-term positions, year-end positions, losses in tax loss harvest, and more. The reports are calculated using the FIFO (first-in, first-out) method, which is helpful in reducing costs. However, users also have the choice to use other calculation methods such as last-in, first-out (LIFO) or highest-in, first-out (HIFO) methods.
The total capital gains are clearly displayed in the top right corner of each report. There is also the option of forwarding each report to a tax advisor.
For readers with other cryptoactive friends and family members, CryptoTrader.Tax performs a generous affiliate program25% recurring commission for each referred customer.
Overall, the service is easy to use and offers an impressive price-performance ratio. While importing transactions can prove to be time consuming for the most active traders, the time saved using the service rather than a manual calculation is likely to be significant. The added support for DeFi staples is also worth mentioning as the space continues to grow. At this point it is clear that crypto is beginning to infiltrate traditional finances and that means taxes will continue to be incurred.
Some of the most active crypto traders may opt for bespoke services, although most would just offer a cheaper option like that of CryptoTrader.Tax. For less active retail investors who want to settle their liabilities through a simple interface, CryptoTrader.Tax may be the best option currently available on the market.
Disclosure: At the time of writing, the author held that role at ETH and AAVE. They also had contact with UNI and COMP on a cryptocurrency index.
Disclosure: When readers sign up for CryptoTrader.Tax using some of the links above, you are supporting independent journalism with Crypto Briefing. This does not affect our reporting. We continue to pursue a fair and balanced editorial. For more information on our partnership with Sorare please do not hesitate to contact us on Twitter or Telegram.
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