The cryptocurrency sector has been doing quite well for the past few years. For many people, small crypto investments have proven to be extremely lucrative. It is no surprise then that the IRS and other agencies have taken note. According to the 2021 IRS annual crime report, confiscations from crypto-related activities accounted for 93% of all asset seizures. If your business is dealing with numerous crypto transactions each day, it would be smart to look into a crypto tax software solution.
With such high figures, it is unlikely the IRS will relent on tracking down tax evasion in crypto. As a result, they are continually coming up with new tools to help them track down offenders with ease.
On the other hand, crypto taxation is likely confusing to many retail investors who are new to the sector. Lucky for them, the IRS has released detailed guidelines on how to file taxes related to crypto transactions.
For this article, we will use the IRS guidelines on Capital Gains On Crypto. In the US, crypto is classified as a taxable asset. Consequently, any time someone disposes of their crypto, they either gain or lose money during the transaction.
For purposes of taxation, there are four ways to dispose of crypto:
For any gains you make when disposing of your crypto, you have to pay capital gains tax to the IRS. A capital gain is defined as the difference in the value of an asset from when you acquire it to when you dispose of it.
Due to the way crypto is taxed, each crypto transaction is taxed as a separate event. For day traders, trying to compile a report for those transactions would be a nightmare. Therefore, the best way to get around this problem is to use crypto tax software.
Crypto tax software is an automated program that calculates the tax you owe the IRS and automatically generates a report for you.
When the IRS is calculating how much tax you owe, they will often rely on software, which crawls through data they obtain from various sources. They will then make a comparison between the amount you paid and how much they are demanding. So, if there is a discrepancy, they can take enforcement action, which could include asset seizures, and in some cases, jail time.
Crypto tax software works like any other tax filing software. However, it has been configured to work with the intricate nuances of the crypto trading world. The most robust crypto taxation software can assist day traders file taxes efficiently, even when they trade on several exchanges a day with thousands of transactions per day.
When accepting crypto at a business establishment, you must get the tax reporting requirement right.
The only way to achieve that practically and efficiently is to use reliable tax filing software. One of the best options out there is SoftLedger. SoftLedger is the first full-featured accounting system that supports crypto. Our crypto-specific features are focused on the complexities inherent in accounting for crypto assets. Not only does it help with filing taxes related to crypto transactions, but it can also handle transactions related to all other business transactions. Here are some of the unique benefits of using SoftLedger.
One of the main benefits of using crypto tax software is how cost-effective it is. Hiring someone to do the work manually would take too much time and resources.
Most crypto taxation software can be set up in 30 minutes or less. It will then run automatically in the background, allowing you to focus on making profitable trades.
Crypto taxation software comes with step-by-step guides that are designed to help you avoid mistakes that could cost you huge fines. Additionally, they often feature an educational section where you can understand the basics of how to file your crypto taxes effectively.
The SoftLedger platform comes with a fully integrated API, which can be customized based on the unique needs of a business. It is especially useful for a company with an in-house development team, which needs a highly customizable solution for all its operations.
For businesses that deal with a lot of inventory, SoftLedger is the perfect solution. It allows a company to track its inventory in real-time, therefore ensuring efficient management of stock at all locations. It is also a useful solution for light manufacturing companies that need to track their inventory in different stages of production.
Due to the unique nature of crypto transactions, it is important to have dedicated software that can work with them. SoftLedger allows users to manage and track all their crypto-related transactions. Users have the option to connect their crypto wallet to the software, just like a bank feed. The business can then receive live reports, which can help it make decisions regarding crypto transactions.
SoftLedger is a cloud-based API software, which comes with some unique benefits for users. An API - or ‘Application Programming Interface’ - may sound complicated but it is based on a simple premise: at its core, an API is a building block that links software and web applications together. It facilitates communication between these items with ease and creates new opportunities for data sharing within an organization. Some of the benefits of using cloud-based API software are:
One of the benefits of using APIs is that they can save a company time and important resources. A company’s in-house development team does not have to do most of the heavy lifting when using an API. They can reduce the number of testers required to work on a cloud application while giving the team greater flexibility to focus on other time-consuming projects.
With the right platform, where information is sourced from multiple digitally-connected sources, firms can save time and resources. At the same time, it allows for accurate, and real-time reporting. With this data, companies can focus on delivering higher value, and high-margin advisory services, which will help boost profitability.
Numerous companies are embracing specialization, which allows them to focus on a specific niche that enables them to differentiate from the competition. Therefore, using API can help a firm more efficiently meet the needs of its niche clients.
Besides eliminating the need to write, test, and maintain code, cloud APIs also cut the cost of buying and maintaining expensive servers needed to store data and run applications.
For a business or crypto asset manager looking to administer their crypto tax and general accounting needs from one single platform, SoftLedger is the perfect solution.
As accounting software has become an indispensable part of running a business, one of the most critical aspects of it is that it must be user-friendly. Even without in-depth accounting knowledge, most users find SoftLedger easy to use. Above all, it offers a full suite of integrated financial management and accounting tools, designed with modern business environments in mind.
To see for yourself how SoftLedger can improve your crypto tax operations, book a demo today.