Cryptocurrencies such as Bitcoin and Ethereum have been on the rise over the past year, attracting attention worldwide. Similarly, the Internal Revenue Service (IRS) has been on high alert and stepped-up enforcement efforts, even for those who hold the currency — let alone trade it. In a new study, the Cryptocurrency Tax Software Market Comprehensive Study analyses the state of the worldwide Crypto Tax Softwares industry with an attention on the global market.
The report provides valuable insights into crypto tax software producers’ status and represents an essential source of guidance and guidance for business-oriented organizations and individuals.
The report gives a broad overview of the worldwide cryptocurrency tax software market for 2020-2025, which encompasses fundamental parameters.
Crypto Tax Softwares
The study gathered the information from critical tax software such as CoinTracking, BearTax Inc, TokenTax, Coin Ledger, Inc., and Bittax. This cryptocurrency tax software is designed specifically for calculating tax exposure from cryptocurrency trading activity.
They also synchronize the transaction and provide accurate reports for profits and losses consistent with the IRS guidelines. The ease with which trading and real-time information get generated using crypto-currency tax software has driven global market growth.
Up till now, the crypto tax software market has been mainly in domination by niche startups. As this market expands, we will see legacy tax software providers acquire some crypto tax software startups.
The tax softwares usually starts pricing at around $50 a year and grows to several hundred dollars, depending on the trades’ complexity and scale. Traders can upload their trading data using an application programming interface, a code that lets various software programs or systems communicate, or a CSV file, a file format used to store tabular data in plain text. The machine then spits out a filled-out form disclosing sales and transfers of capital assets, which crypto users must submit to the IRS.
Data is relevant because it helps make crypto-monetary transactions even more complicated than conventional stock exchange by monitoring the basis of a trader—this is removed from the asset’s sales price to calculate its taxable benefit.
Cryptocurrency traders exchange one currency for another, allowing businesses to use unbelievably large price databases to deduce the exact value of the transactions at the time of their operations.
Why Crypto Tax Softwares are Growing
The IRS has sent thousands of letters to virtual currency traders advising that they pay taxes correctly. Representatives of some of the tax softwares replied that they saw an increase in the number of traders signing up to use their services by the end of July.
CoinTracking founder and CEO Dario Kachel said in an email that the average monthly registration is 10,500 users, 27.3% of them in the United States. And 2.4 million average monthly page views are 29.1% in the U.S.
However, between July 26 and August 25, registrations almost tripled to 29,700, with nearly half of those users in the United States and 7 million page views, with 42.2% coming from the United States.
The traffic at BearTax quadrupled in the days following the letters and after the instructions from October to more than 1.300 guests, and new entries roughly three times more than 130 from an average daily range of approx. 40 to 50. After 4 to 5 days, the two spikes petered out.
The crypto tax softwares usage trend might only grow upwards due to the high adoption rate. This trend might get attributed to the fact that more people are gaining access to cryptocurrencies due to the wider availability of smartphones. Today, the number of smartphone users worldwide exceeds three billion and is predicted to increase further in the next several years by several hundred million. With a combined 1,46 billion users, China, India, and the U.S. represent the countries with the most significant smartphone users.
Rising Cost of IRS Service Providers for Tax Filing
The cost of IRS service providers is quite high hence the cryptocurrency taxing softwares are taking advantage of this market gap. By providing a cheaper and secure option, more people are opting for this services.
Some softwares provides extra services that come in handy such as Bitcoin.Tax that partners with tax attorneys, CPAs and enrolled agents, users can get tax preparation, advice and planning with a tax professional to complete and file their tax returns.
Challenges to Restrict the Progress of the Crypto Tax Software Market
Blockchain data is open for inspection by all—including any malicious criminal who seeks financial benefits information. The blockchain’s permanent record also aggravates this issue. If an individual is credited by some means, it will ultimately be revealed for the duration of pseudonymous transactions to this individual.
However, some exchanges also leave trading data gaps for tax software providers. Similarly, some exchanges just shut down and collect data.
Sharon Yip, the founder of Crypto Tax Advisors LLC and founding advisor to the upcoming Blockchain Accountant Association, said specific systems do not adequately manage crypto-currency revenues or their use as payment for items.
“They do not have transfers—they would depend on exchange-related data,” she said. She referred to circumstances where traders take holdings and all of the historical trading and tax base data necessary to calculate their trading tax, to another exchange that cannot monitor all of the trading data of the previous transaction. For their customers and themselves, that’s very frustrating.
The fear that is pushing individuals towards the crypto tax softwares was not restricted to IRS traders. To this, Zac McClure, a TokenTax co-founder mentioned that everyone didn’t even have the letters.
The IRS has started accepting the tax positions of some of those who have been urged to learn more. The guidance itself, which allows transactors such as airdrops to become taxable as it happens, should attract even more traders to make sure they pay taxes on these transactions and pay them. This will lead more people to file, more people to comply, more people to pay attention.