Why do I need Crypto Tax Software?

If you have already looked at the implications of CARF, if not already on the case, you will understand the need to get on top of your Crypto Tax Liabilities.

But the reality is this: Trying to keep track and record anything manually for Tax purposes that is Crypto related is almost impossible, for all but the lowest volume level of trading. You think it will be easy and you keep your records, but when you come to use them, thsts when it all starts to overwhelm you.

The solution became very clear to me but it did take a while - Most people cannot accurately or effectively do this without help, and if you are one of those people that can, it will be at the cost of many hours, or even days of your life.

Simply put, you need some good software, to save yourself time, trouble, headache and worry, right from the outset, avoiding the pain of what I went through.

Even if you are not very active with Crypto, just a few trades may often involve a combination of various buys, swaps, fees, staking, selling, transferring and cashing out, which means that the events that you have to record will easily quadruple or more. Before you know it, in a few months of what you may think of as just fairly low activity, you may have clocked up hundreds of accountable transactions.

Believe me, I found this out for myself after implementing my software, as prior to this I wasn't sure that I really needed it. How wrong was I. I was shocked at the multiple micro transaction fees that stacked up from my defi staking pool activities. Even though many of these fees may help to offset or reduce tax (but not always), they will still need to be recorded, accounted for and reported on if required.

Once you get this in your mind and your chosen software is in place, you are already 95% there. Let this do the heavy lifting for you.

How most Crypto Tax Software works

To sum this up into one sentence:

Crypto Tax Software reconstructs your complete crypto history, then it applies your Country specific Tax authority rules and automatically calculates your realised gains and losses across every exchange and wallet that you have interacted with.

As the name suggests, Crypto Tax Software is online web based software that specialises in handling your tax data and then automatically calculates your income and capital gains based on all your Crypto trading, staking, swapping, buying and selling activities. It then produces the required report(s) and figures in a compatible format, for you to file with your own Tax authority.

There are now quite a few companies out there, all pretty much offering the same kind of service and most are very good, some with particular strengths. These platforms all run on secure websites. They usually require an annual subscription, and can be very cost effective, with the subscription rate for low volume traders starting at under 50 USD per year.

You can usually sign up in less than a minute or two and almost all offer a free trial, with no card details being required up front.

Basically all you then need to do during your trial, to instantly start generating a good idea of your Crypto tax liability, is to enter all of your public wallet addresses, which are easily found and are usually managed with your self-custodial wallets such as Metamask, Token Pocket, Bitget, etc.

To enable the most complete calculation by the software and to give the most accurate summary of your losses and gains, it is really important that you enter every wallet address that you have, even if you think that some transactions were a long time ago and may not matter, as may affect the total figures.

At this point, I need to clarify for those who may misinterpret or worry about the above request. Entering your public wallet addresses does not mean entering your private keys or your seed phrases. I really need to point this out for visitors to this page, who may be new to this arena.

Just to clarify, the data that all Crypto tax software platforms require, is exactly the same as what the HMRC or anyone can see and what they will use themselves to view your activity. It is public and transparent, on the blockchain(s) that you engage with during your various Crypto activities. It is "read only".

However, the other information that the Crypto Wallets also require to see, is your front end fund loading. By that, I mean they need to see your transactions with your main exchange, for example Coinbase, Kraken, Binance, OKX, etc, whereby on these platforms, you then convert your Fiat Dollars, Pounds, Euros, Yen etc into your chosen Cryptocurrency tokens.

You will need to give your Crypto currency software platform your authorisation to access all of your exchange accounts if you have more than one, for example Kraken and Coinbase. This authorisation is a very common and essential requirement for this type of software and only grants read only access to the required data.

Without granting your exchange account permissions, or not entering your public wallet addresses as above, means that your software cannot gain the complete picture of the relevant transaction data going in and out, that is required to accurately calculate your liabilities, meaning that without this authorisation, your subscription effectively becomes worthless and ineffective.

The great part about all this, is that entering the above data actually represents most of the work that you will be doing. If you only have one or two wallets and only work with a few coins, this is very quick and simple to do, and means you will also get a good picture of your realised income, gains and losses within minutes

Following your input as above, the software immediately gets to work in real time and looks across all your token activity on all the different blockchains and platforms. It then pieces together your activity, and based on this detailed blockchain data, calculates all the relevant income and capital gains related to the activity of all of your wallets, as long as you inputted these.

Almost all the software available out there caters for most countries around the world, and offer dedicated software set up to function to the exact rules and reporting requirements of the relevant Tax jurisdiction for your own country. The software then automatically generates a full report in a format that allows you to enter all the required figures needed for Tax filing with your own tax authority.

These reports are usually available in simplified format, which may be all that is needed and could be more relevant for low level traders. But also many Crypto Tax platforms also offer an additional more detailed format, still as part of your subscription, that you could submit to an accountant if you also work with one.

The advantage of these structured detailed formats, is that they are an industry standard format for accountants, so they can therefore quickly get what they need from your data, saving many hours and therefore potentially saving you on professional fees.

Your Peace of Mind

The data that the Crypto tax software generates is always available for you to refer to, and more importantly is your back up, should you ever be challenged by your Tax authority. Whilst (in my opinion) nothing is ever bullet proof where tax affairs are concerned, the use of a quality software set up may give you a much better chance of a favourable outcome, than by relying on manual records, potentially inaccurate figures, dates and your memory.

What else is needed after the report is generated?

I mentioned earlier that after entering the required data to enable the software to generate your data, this is 95% of the work done.

But, there is another essential thing you will need to do after your report is generated, which is to review and double check your transactions. This may sound like a pain, but it is essential, to ensure that you do not underpay your Tax (remember CARF - they have an idea of what to expect).

But an equally important reason to double check your transactions, is to ensure that you do not pay too much tax.

All the main Software providers enable you to easily search, filter and review all your transactions across all your wallets, to ensure that they are correctly categorised and change them if required. You need to ensure that the correct type of transaction is correctly allocated to its function, for example a transfer, swap, disposal, airdrop or a fee etc.

The software that the main platforms provide is normally very accurate, but if any anomalies are spotted, it is a very simple matter to quickly tweak and correct anything that looks incorrect, and as soon as this is done your software will automatically regenerate a new report. Plus, it will do this as often as you like, whenever any changes are made.

Will the software be compliant with the ever increasing list of coins, blockchains and platforms out there?

Yes. The main Crypto Software platforms out there, all offer integration with all the main established tokens, blockchains, Exchanges and defi and other platforms. However, when something new comes along, adding a new API may take them some time to create and integrate and it all depends on the demand by the wide global Crypto community.

If this is the case for you, for example if you are perhaps working with a new token on a new blockchain, it can be fixed by creating and uploading a custom CSV file to your user account on your providers platform.

This custom CSV just refers to a comma separated file and is a fairly standard requirement by all the main providers, to ensure complete coverage and integration of all your income and gains. The user creates this themselves and is a fairly simple process, with plenty of guidance and templates available from your provider and the wider community.

You will then just need to enter all your relevant transaction data onto the CSV to show your activities for that token. This detailed information is, as mentioned above, all easily found on your public blockchain page.

It is also important to point out that any custom CSV that you create, will need to be updated periodically, as and when you make more transactions throughout the tax year. The reason of course, is that the CSV file is static and the software system can only use what you feed it as it cannot by itself update any of the data that it sees on the CSV.

Custom token pricing

All the main Software companies provide the market prices for thousands of crypto assets. However, due to the rapidly evolving nature of the crypto market, there may be cases where they cannot retrieve the market price. This could be due to the token being very new, or not frequently traded, or low liquidity, or even gained through an ICO or IDO offering.

When the occasional token price issues occur, provision is made to easily add the market token price manually.

What Crypto Tax Software do I use?

Because I have certain requirements, I have chosen a Crypto Software provider called SUMM (this company was formerly known as Crypto Tax Calculator) who offer exactly what I need, in addition to all the standard features, tokens and blockchains, which are as follows:

1. Anubis Blockchain Integration

Most of my Crypto activities are involved with Origin LGNS and Spartan Arena. The main tokens for both these defi platforms are both on the Anubis Blockchain.

The problem for me is, although 6 months old, Anubis is still considered to be quite new and currently no other Crypto Tax Software platform offers a built in integration for this blockchain. SUMM is the only one to do this and it has now recently been added.

This is great news for me and all the other Anubis users, meaning we no longer have the hassle of having to create custom CSV files and populating these with their transaction data. Not fun, when you are on a defi staking platform, which creates a very high level of various transactions, creating both income and gains tax scenarios. Plus you have to periodically update the data in the custom CSV.

Therefore, if you are doing any transactions on Anubis, you may also benefit from using SUMM. Plus, it already has built in support and integration for over 3500 integrations, including all the main blockchains and thousands of tokens and stablecoins.

2. Multiple Tax year Integration

The other key thing that SUMM gives me, is the ability to look back at previous Tax years, giving me a chance to fix any errors. It also, most importantly of course, enables me to work on the current tax year, but it then also starts calculating and projecting for the forthcoming new Tax year. This is a great feature, that enables you to project and plan your profit and loss budget accordingly.

You can also look back in the past with many of the other Crypto Tax packages, but you will need to double check, as with some of them, you may need to pay a seperate subscription for each tax year that you wish to work on, whereas SUMM includes this facility with just one subscription.

To Summarise

I believe that based on my own experience, and given the imminent CARF implementation, everyone who is engaged with Crypto trading, at any level of transactions or financial amount, will need some kind of Crypto Tax software.

Whatever platform you choose, the main thing is to get started early, to get the most complete picture of your Crypto affairs as soon as possible, enabling you plenty of time to explore and familiarise yourself and make any changes that may be required.

The sooner the better, for piece of mind, and I would even go so far as to say for your own health and wellbeing.

>> Click here to start your free trial with SUMM Crypto Tax Software

Key Takeaways:

• CARF is imminent - we cannot change this, so we should be prepared for it.
• Manual tracking of Crypto transactions can be difficult, innacurate and time consuming.
• Crypto Tax Software reconstructs your complete crypto history and automatically calculates your gains and losses.
• There are many Crypto Software companies - Each one may have certain strengths.
• Most software providers offer a free trial period, with no card details ever being required up front.
• Most software providers work on an annual subscription model.
• For low level crypto trading, Software subscriptions can be less than 50 USD per year.
• All the main providers offer full integration with all the main Blockchains and Tokens.
• All the main providers offer full integration with all the main Exchanges, including Binance, Coinbase, Kraken and many more.
• All the main providers offer a way for you to review, check and edit your transactions if required.
• All the main providers offer a way to add custom token pricing, where this rarely may not be showing for various reasons
• All the main providers offer a way to upload custom CSV files to cater for little known or upcoming Blockchains and platforms
• If you also have any transactions on the Anubis Blockchain, SUMM is the only wallet that has the built in integration for this.
• SUMM offers you the ability to work on different tax years, as part of your subscription, but do check to see if others offer this.