Published on November 12th, 2019 | by Sunit Nandi0
The Best Cryptocurrency Tax Software
Cryptocurrencies are steadily growing in popularity across the globe and for good reason. The level of accuracy and security provided by cryptocurrencies is almost unparalleled, due to the fact that cryptocurrencies work on a decentralized system that relies on unanimous consent within the network to validate transactions. This ensures that all transactions are valid and recorded in the ledger, thereby, preventing any form of manipulation of data.
What are Cryptocurrencies?
Cryptocurrencies are digital assets that can be used as a medium of exchange. These virtual currencies use strong cryptography to secure transactions and regulate their production. Cryptocurrencies are powered by blockchain technology, which is a type of distributed ledger. When you make a transaction using cryptocurrencies this transaction is added to a set of transactions called a “block”. As more and more transactions take place more blocks are created and these are immutably linked to one another in a cryptographical sequence, making it near impossible to tamper with these records.
Why were cryptocurrencies created?
After the 2008 financial crisis, where millions of people lost their jobs and savings, mainly due to the mismanagement of funds by banks there was a need for something more secure. The first cryptocurrency, Bitcoin, was created for this reason. Bitcoin was created under a decentralized system that was separate from banks and governments. The fact that cryptocurrencies are decentralized prevents the mismanagement of funds and reduces the risk of an economic crash due to the mistakes of a central regulatory authority like a bank or government.
Advantages of Cryptocurrencies
There are a number of advantages cryptocurrencies have over traditional fiat currencies. Let’s take a look at some.
Cryptocurrencies are based on a decentralized system. This reduces the chance of failure or manipulation. When a system is regulated or controlled from a central point or database the whole system has a higher chance of failure or manipulation. The fact that all cryptocurrency transactions are authenticated by a network of computers and not just a single entity implies that in order for the system to fail multiple computers or nodes will need to fail simultaneously. If the system has to be manipulated a large number of computers will need to work cohesively to do so, the probability of this happening is near impossible because even if one of the nodes does not authenticate the transaction the whole transaction fails.
Cryptocurrencies are considered more cost-effective than traditional fiat currencies due to the fact that they operate on a peer-to-peer platform. A peer-to-peer platform allows users to transmit data directly between computers without the need for intermediaries. With traditional fiat currencies, there are a number of intermediaries that are involved in the transaction and each of these intermediaries carries a processing fee. With a peer-to-peer system, there are no intermediaries, therefore, no processing fees.
Since cryptocurrencies use a peer-to-peer system for transactions there is almost no lag in the processing of a transaction. Once a transaction is authenticated by the network it is added to a block, this authentication process is done in seconds. This reduced time to carry out transactions can be critical when transactions have tight time constraints.
Cryptocurrencies are developed on the blockchain network. Within the blockchain each block of transactions is attached to other blocks immutably in a cryptographical sequence, so to make any change to a single block would require the whole blockchain to be updated, these could be millions of blocks making it next to impossible to hijack this system or manipulate it in any way.
Tax on Cryptocurrency
Presently in India, there is almost a blanket ban on the use of any cryptocurrency as a medium of exchange. Due to this, there are no tax regulations put in place. A Cryptocurrency Bill is proposed to the presented in the winter session of the parliament to clarify the regulations that will govern cryptocurrencies in India until then all information on cryptocurrency taxes is purely speculative. Since India does not consider cryptocurrency a foreign currency it will fall under the head of ‘Goods and Services’, since it might be taxed under this head it is considering an 18% tax on cryptocurrencies.
Cryptocurrency tax calculators
There are a number of calculations involved in ascertaining the taxable income from transacting in cryptocurrencies. Instead of making these tedious calculations yourself you can now rely on a number of crypto-tax calculators available online. These platforms can help you create a tax report in minutes and auto-fill lengthy tax forms. Let’s take a look at some of the best Cryptocurrency Tax Calculators in the market.
Zenledger is a crypto-tax software designed to allow you to import all your cryptocurrency transactions, calculate gains or profits from such transactions, create tax reports and fill out tax forms. ZenLedger has partnered with TurboTax to make crypto-tax filing super quick and easy.
ClearTax’s crypto-tax calculator is an easy to use software to calculate your crypto-taxes. This tool allows you to calculate your total tax liability from cryptocurrency transactions. You will need to provide information like where did you acquire the cryptocurrency from, the purchase price of the cryptocurrency, the sale price and the transaction fees associated with it. Once you have provided this information and a few other details related to the cryptocurrency, you will receive a detailed breakdown of your taxes and your tax liability.
CoinTracker is a free app that can be used online for calculating your total crypto-tax liability and filling out the relevant tax forms. You will be required to sign up using your email address. Upon signing in to your CoinTracker account you will be directed to the tax calculation page, on this page, you will need to follow three simple steps to create a tax report.
Step 1: Import all your exchanges and wallets
Step 2: Review your transactions
Step 3: Download your tax report and review the auto-filled tax forms
myCryptoTaxCalculator is an easy to use crypto-tax calculation software that can help you fill out the required information in tax forms. myCryptoTaxCalculator will generate a tax report for you in three simple steps.
Step 1: Import exchanges and wallets
Step 2: Review your transaction history
Step 3: Generate a tax report
CryptoTrader.tax is a tax reporting software built to make crypto-tax reporting less painful. Instead of spending hours pouring over spreadsheets this software allows you to simply import your exchanges and wallets directly onto the platform. The CryptoTrader.tax engine sorts this data and runs it, and with a click of a button, you can receive a tax report that you can file yourself.