At CryptoTaxCalculator we provide crypto tax software to enable accountants and individuals to manage their crypto tax. In the last year we have seen a 60-fold increase in traffic to our website. Crypto tax has gone from a niche service amongst accountants, to an increasingly common pain point. But what makes crypto tax so hard?
Crypto to crypto swaps
When we talk to accountants, the initial view of Bitcoin and other cryptocurrencies is that it is similar to buying and selling stocks, and you would simply handle these calculations in the same way. However at some point they start to come across a crypto-crypto swap, where there is no fiat value, and they become stuck. In crypto, you can commonly have a situation that is similar to buying Google stock directly with your Apple stock, but paying for the transaction fee in Tesla stock. As you can imagine, this gets incredibly painful if you try to calculate this by hand. But the pain doesn’t stop there.
Income earned from “staking”
Nowadays you can interact with financial products directly on the blockchain. For example, you can deposit crypto into a “staking contract” and earn interest. To an outsider, this might look similar to depositing crypto into a term deposit and receiving interest as income. But there is a lot of uncertainty as to when a disposal or a deposit has occurred. To add to this complexity, the interest itself can be earned very frequently. For example, on the Ethereum network, interest is earned every six minutes. This can add up to thousands of micro-transactions every year.
Trading directly on the blockchain
Another thing you can do now is trade directly on the blockchain. The easiest way to think about this is similar to torrenting music directly from other computers e.g. Napster. There is no “centralized” exchange where you deposit funds and interact with a traditional orderbook. Instead you interact directly with pools of liquidity, provided by individuals. This is algorithmically managed by programs on the blockchain. This might sound crazy, but it is happening right now, and is the fastest growing segment in the crypto industry. Uniswap, a popular decentralized exchange, currently trades between USD 300M-1B of volume every day. From a tax perspective, the issue with these decentralized exchanges is that there is no way to request your transaction history, because there is no central exchange or company to manage your data. Instead, similar to how you need a browser to view what is on the internet, you need software to see the transaction history on the blockchain.
Sort out your crypto tax nightmare
Fortunately there is a solution. At CryptoTaxCalculator, we have been working hard over the last three years to provide accountant grade software to help individuals and accountants to collaborate and complete their tax return. We are proudly Australian made, with full Australian based tech support, and a professional accountant suite. By using the right software, crypto tax is no longer a pain to solve.
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