Over the past few years, cryptocurrency trading went from an unheard of concept to a common investing and trading practice. This increase means more people will have to report capital gains and losses on their trades when they file 2022 taxes (in 2023).
Unfortunately, most traditional tax software companies are ill-equipped to handle the complex taxation on crypto tokens and NFTs.
You'll probably need to buy crypto tax software and a traditional tax filing tool if you're a crypto trader. Plus, if you've done anything with NFTs, you'll likely need to do some work along with tax software manually. We explain why you need both and how to choose the best for you.
Do You Need Separate Software To File Crypto Taxes?
More than likely, yes.
At this time, TurboTax Premier is the only major tax software that will calculate your tax liability on crypto. However, it can only do so for transactions that occurred on a few of the major exchanges. If you don’t trade on these exchanges (or you self custody or use DeFi), you must manually calculate the fair market value of your transactions.
Software designed specifically for crypto trading fills in these gaps. Crypto-specific accounting software has been available since 2017, but its importance has exploded in the last few years. Today, more than half a dozen reputable companies can accurately calculate the taxes due based on your trade history.
In most cases, we recommend that crypto traders use tax software to calculate their tax burden. Casual traders can even access this type of software for free.
How Crypto Is Treated By The IRS
The IRS treats cryptocurrency as property. Investors can make or lose money by trading, earning interest, or staking rewards. Each type of income has different tax implications.
Unlike income paid in a fiat currency, the fair market value of crypto gains, losses, and income isn’t always easy to calculate. Tax filers can calculate that value by looking up the U.S. Dollar to Token exchange rate at the time of token purchase or acquisition and the value at the time of the sale.
Doing this by hand for one to two transactions isn’t a huge deal. However, the more trades you conduct, the more likely you will need software to help.
What Reports Do I Need To File My Crypto Taxes?
Most crypto traders only need to transfer records from IRS Form 8949 to Schedule D. This is the same schedule for reporting stock sales.
TurboTax has a robust support mechanism for transferring crypto trades from Form 8949 to your tax return. Likewise, TaxAct supports adding the form as an attachment.
However, the companies reviewed below also create reports needed to complete other filing reports from non-trading transactions. These are a few other tax return sections that may apply to crypto investors.
Schedule 1: Investors who received gifts (including airdrops) or income from forks or hobby income will need to report it as other income on line 8 of Schedule 1. All software packages included in this review allow users to manually enter these transactions into the software. The information from this needs to be transferred to Schedule 1 manually.
Schedule B: Investors who earned interest or rewards from lending or staking will need to report their investment income on Schedule B. Outside of the crypto world, you would expect to see this information on a 1099-INT or 1099-DIV statement. However, Coinbase is issuing its information on a 1099-MISC.
Schedule C: Investors who mine cryptocurrency may be eligible to take deductions from their taxes. They should report all mining activity on Schedule C. If you receive a 1099-MISC associated with this activity, you can report your income using that. However, most miners will need to use a tool to translate their mining activity into US Dollars.
Unfortunately, each software has different requirements for entering and reporting this information. Despite the differences, each software recommended supports these lesser-used options in some way.
Best Crypto And NFT Tax Software
The best crypto and NFT tax software calculate the taxes you owe based on your blockchain activity. Most importantly, these tools calculate capital gains and losses based on your trading activity.
All the companies reviewed here create IRS Form 8949, which calculates capital losses. The information from this form goes on Schedule D in your tax returns.
These software companies also generate reports you can use to report income from interest (or lending rewards) or mining-type activities. You report investment income on Schedule B and mining income (and related expenses) on Schedule C.
We’ve broken down our list into two overarching categories:
- Best DeFi tax support software
- Best CeFi tax support software
Keep reading to see all of our picks for the best crypto and NFT software for 2023.
Best DeFi Tax Support Software
Decentralized Finance (DeFi) is a trustless, permissionless financial ecosystem. It emphasizes “smart contracts” and trust in technology rather than business entities. A more significant number of NFTs are produced and exchanged using DeFi. Smart contracts allow individuals to prove ownership of a unique token (NFT).
In the eyes of the IRS, an NFT is the same as any other token. Fair market value for any NFT is determined based on ETH to USD conversion (or whatever underlying Blockchain supports the NFT). There are other uses for DeFi, but NFT creation and trading are some of the most popular
Best DeFi Tax Support Software Overview | |
|---|---|
Best For | Tax Software |
Overall | |
Full Service | |
Value | |
Low Cost For Low Volume Traders | |
Best Overall: TaxBit
TaxBit is the only company that supports DeFi taxes for free. As long as a user can connect to a supported exchange, the TaxBit engine will report on the current value of your NFT collection and generate free tax reports based on your transaction history.
TaxBit dropped its paid consumer products last year, so you’ll only have access to self-service features.
Best Full Service: TokenTax
TokenTax is a full-service crypto tax software company. The company specializes in DeFi and other “extraordinary” crypto problems. For example, it helps with forensic accounting based on defunct exchanges. While costly, it is a top option for NFT investors and those with DeFi transactions.
Best Value: ZenLedger
ZenLedger offers DeFi support on its $149 Premium tier. ZenLedger has preferred integrations with TurboTax making it a cost-effective and high-quality option for DeFi crypto traders.
Low Cost For Low Volume Traders: Koinly
Koinly is a bit more expensive than ZenLedger, but it supports DeFi at every level, including the $49 Newbie tier. The company also supports taxes for algorithmic traders with more than 500,000 transactions annually.
Best CeFi Tax Support Software
Most crypto traders use centralized finance (CeFi) for their investment activities. Traders in this camp conduct most of their trades through exchanges where a company facilitates trading activities.
Users may transfer tokens off of the exchange into a hardware crypto wallet. But their primary trading activity is done in a centralized location.
At tax time, CeFi traders typically enjoy more straightforward tax treatment. They can usually download their activity directly from an exchange and prove the fair market value of all their trades. These are some of the best options for CeFi traders.
Best CeFi Tax Support Software Overview | |
|---|---|
Best For | Tax Software |
Coinbase Users | |
Low Volume | |
Everyday Traders | |
Ongoing Support | |
Best For Coinbase Users: TurboTax Premier
If you only traded using Coinbase, you don’t need an extra tool. Simply pay for TurboTax Premier. TurboTax can connect directly to the exchange and read all your transactions. It will calculate taxes due on all these trades—no need to pay for an extra piece of software.
Free For Low Volume: ZenLedger
ZenLedger generates form 8949 for free for users with up to 25 transactions in a year. The product is priced competitively at every tier, so crypto traders should consider it (especially people with 1,500-5,000 transactions). The product supports all crypto income, including staking, rewards, and other sources.
Best For Everyday Traders: CoinLedger
CoinLedger, formerly CryptoTrader.tax, offers a “Day Trader” tier for filers with 100-1500 transactions. This $99 option is a great price point for many active traders who don’t want to pay extra for support for thousands of transactions. DeFi support and other features are coming soon.
Best For All Others: TaxBit
Final Thoughts On The Best Crypto And NFT Tax Software
In 2023, most crypto investors need the combination of custom crypto tax software AND a typical tax return software. TurboTax Premier is our top tax software for crypto traders this year, but most traders will need to pair it with custom tax software.
For crypto-specific software, most users should consider ZenLedger, CoinLedger, or TaxBit. However, there may be edge cases where an alternative to these offers better functionality or a lower cost.
Eric Rosenberg is a financial writer, speaker, and consultant based in Ventura, California. He holds an undergraduate finance degree from the University of Colorado and an MBA in finance from the University of Denver. After working as a bank manager and then nearly a decade in corporate finance and accounting, Eric left the corporate world for full-time online self-employment.
His work has been featured in online publications including Business Insider, Nerdwallet, Investopedia, The Balance, Huffington Post, and other financial publications. When away from the computer, he enjoys spending time with his wife and three children, traveling the world, and tinkering with technology. Connect with him and learn more at EricRosenberg.com.
Editor: Claire Tak