Crypto software provides investors with simplified solution for reducing their tax bill

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The profits some investors have incurred through cryptocurrency investing have been comparable to winning the lottery. Unfortunately, these earnings are also taxable like the lottery, turning seemingly big wins into major burdens. To alleviate the amount of taxes they will have to pay, investors are encouraged to use several strategies to help them retain more of their earnings.

Conceptually, leveraging tax savings strategies makes sense. However, when an investor has made hundreds or thousands of transactions, making these calculations manually can be time-consuming and lead to overlooked savings. Furthermore, as a new asset class, it can be difficult to navigate different tax savings strategies without guidance. For example, consider that short-term and long-term gains are taxed at different rates, and giveaways, airdrops and other crypto income are subject to an ordinary income tax rate instead of a capital gains tax rate.

Approaching the 2021 tax year, Cointelli has made it their aim to improve crypto tax optimization with software that automates these calculations for investors.

“There is a range of ways to minimize how much tax you’re paying. With its highly accurate calculations based on advanced technology, Cointelli makes sure you aren’t paying any extra on your crypto taxes and contributes to reducing your tax bill,” Mark Kang, the CEO of Cointelli, shares.

Cointelli simplifies this process into four steps, starting with connecting a user’s wallets and exchanges, doing an automatic or manual review, downloading the associated report and providing a detailed overview that can be shared with an accountant. The software now supports over 100 wallets, blockchains and exchanges, enabling users to sync all transactions into a single report. Cointelli’s comprehensive tax solution is also now offered as a featured service by the American-based digital money platform, Uphold.

Employing tax-saving strategies

When it comes to employing a series of tax-saving strategies, it is worth considering the Internal Revenue Service’s (IRS) perspective. The IRS views cryptocurrency as a property for tax purposes, meaning a capital gain is recognized when the asset is sold. Smart investors reframe their gains by looking at different methods for “cost basis,” a term used to describe the cryptos’ value at the time of purchase.

Four methods then become worth considering, including FIFO (First In, First Out), LIFO (Last In, First Out), HIFO (Highest In, First Out) and Specific ID (matching a selling price to specific units to prioritize long or short term gains).

When the different methods of establishing cost basis are used correctly, they can help reduce an investor’s taxes greatly. Moreover, by leveraging accounting software, investors can benefit from using the optimal method for their portfolio without doing four separate sets of calculations.

The second strategy investors are encouraged to use is a concept known as tax-loss harvesting. With this method, investors sell depreciated investments to offset their capital gains. They undergo this process if the price of one of their assets quickly loses value, and they choose to sell and recognize the loss instead of waiting for the asset to appreciate. The loss the investor took could then be applied to the capital gains from other investments, which may potentially eliminate taxes owing altogether.

More insights on Cointelli here

Again, this strategy can pay off when employed correctly; however, it can be time-intensive and unproductive for users unfamiliar with its nuances. Cointelli helps investors employ tax-harvesting by automating the net crypto gain and loss calculations.

Looking to the professionals

Since experienced CPAs have designed Cointelli with their knowledge and experience deriving the best tax value, the software has quickly gained the support of more prominent accountants and firms. By carefully applying the methods of cost basis and capital losses, the team continues to make simplification their goal into the 2022 and 2023 tax seasons.

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you with all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.

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