Over the past year, the average daily crypto trading volume more than doubled. And this increase means that more people will have to report capital gains and losses on their trades when they file 2021 taxes (in 2022).
If you’re a crypto trader, you'll probably need to buy crypto tax software and a traditional tax filing tool. Plus, if you've done anything with NFTs, you'll likely need to manually do some work along with tax software. We explain why you need both and how to choose the best for you.
Do You Need Separate Software To File Crypto Taxes?
Unlike income paid in a fiat currency, the fair market value of crypto gains, losses, and income isn’t always easy to calculate. To do so, tax filers must look up the US 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 1-2 transactions isn’t a huge deal. However, the more trades you conduct, the more likely that you're going to need software to help.
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, 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, there are more than half a dozen reputable companies that can accurately calculate the taxes due based on your trade history.
In most cases, we recommend that crypto traders should use tax software to calculate their tax burden. Casual traders can even access this type of software for free.
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 used for reporting stock sales.
However, the companies reviewed below also create reports needed to complete other filing reports from non-trading transactions. These are a few of the other tax return sections that may apply to crypto investors.
- Schedule 1: Gifts (including airdrops) or income from forks or hobby income will need to be reported 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. All mining activity should be reported on Schedule C. If you happen to receive a 1099-MISC associated with this activity, your income can be reported 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 associated with 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 is used to calculate capital losses. The information from this form goes on Schedule D in your tax returns.
These software companies also create reports that can be used to report income from interest (or lending rewards) or mining-type activities. Investment income is reported on Schedule B and mining income (and related expenses) are reported on Schedule C.
Our list below is broken out into to 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 2022.
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 larger 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 at this time.
Best DeFi Tax Support Software Overview
Low Cost For Low Volume Traders
Best Overall - TaxBit
TaxBit is the only company that supports DeFi (Ethereum protocols) 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 is a freemium product that offers tremendous value for paid customers as well. Filers who need help from a CPA, or who have to manage data from a defunct exchange can upgrade to the Plus or Pro support levels. At the Plus level, TaxBit offers concierge support for CSV imports from old exchanges. At the Pro level, users receive an annual review from a CPA.
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 it is very expensive, it is a top option for NFT investors and those with DeFi transactions.
Best Value - ZenLedger
ZenLedger opens up 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 easier tax treatment. They can typically 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 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 of 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 income from staking, rewards, and other sources.
Best For Everyday Traders - CryptoTrader.Tax
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
TaxBit generates free IRS tax forms for filers who use one of 500 connected exchanges. Almost all crypto traders based in the US can use TaxBit to generate IRS for 8949 for a unified view of their crypto trades. This form can be imported directly to TurboTax Premier and used to calculate tax liability.
TaxBit Plus and Pro software provides ongoing visibility into tax liability and end-of-the-year tax reports. This tool is an amazing addition for investors who actively trade and have under-withheld in the past year. DeFi support is currently in Beta.
Final Thoughts On The Best Crypto And NFT Tax Software
In 2022, most crypto investors need the combination of a 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 the crypto-specific software, most users should consider ZenLedger, CryptoTrader.Tax or TaxBit. However, there may be edge cases where an alternative to these proves to offer better functionality or a lower cost.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.