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TokenTax Review

TokenTax Review: A Solution for Complex Crypto Taxes

TokenTax In Brief

TokenTax is a platform for calculating taxes on your crypto-based capital gains and losses. Launched right before the 2017 tax season, the online app arrived just in time to help the many novice investors who jumped into last year’s crypto boom. With a couple of months left to adjust your tax strategy, this TokenTax review will help you decide if it’s the right service for you.

Pros

  • Tax minimization algorithm applies more nuanced tax calculations.
  • Almost all customers save more than TokenTax costs.
  • Supports all exchanges and tax codes in all countries.

Cons

  • Basic plan only works with Coinbase and doesn’t accept uploads.
  • Premium and Pro plans only support CSV upload from other exchanges.
  • TokenTax is not a portfolio tracker, it just calculates taxes.
  • Relatively weak Help Center does little to help you get started.
  • Other support options only available in more expensive subscription plans..

What is TokenTax?

TokenTax got its start in late 2017, just as the huge wave of new cryptocurrency investors were realizing that calculating capital gains taxes aren’t easy.

As co-founder Zac McClure explained on Rob Mitchell’s The Bitcoin Game podcast, the impetus to create a crypto tax platform came in response to a real need in the market. “As I was investing in cryptocurrency last year,” McClure said, “I saw that 2017 was going to be the perfect storm for crypto taxes.” The hour-long podcast is worth listening to for McClure’s insights into tax laws and how they apply to cryptocurrencies.

McClure elaborated on TokenTax’s origins in a post to the company blog. The proliferation of tokens, the surge in new cryptocurrency investors and skyrocketing crypto prices meant the IRS and other tax agencies would be paying more attention to traders’ crypto earnings.

Towards the end of 2017, co-founder and lead developer Alex Miles entered TokenTax in the 2017 Product Hunt Global Hackathon. More than 4,500 developers from 124 countries competed for $250,000 in prizes. TokenTax took the grand prize, which included $100,000 worth of credits on Amazon Web Services.

Leadership team

TokenTax is still a young startup with about a dozen employees and contractors led by its two founders.

  • Alex Miles, co-founder: Miles heads the technical side of TokenTax. He was a product designer at Dropbox when he met McClure and joined TokenTax
  • Zac McClure, co-founder: McClure’s career has taken him from the financial industry to the non-profit sector. After a stint with Teach for America, McClure received his MBA and began a career in strategic consulting. He was a director of strategy at publishing company Elsevier when he launched TokenTax.

Core Features

With a mission focused exclusively on calculating your taxes on crypto-related capital gains and losses, TokenTax’s programmers can concentrate on developing sophisticated tools to meet a wide range of needs.

TokenTax minimization

According to TokenTax, 96% of its customers have used its tax minimization techniques to more than enough money to cover TokenTax’s subscription price. The company bases its claims on the more sophisticated approach it takes to calculating capital gains and losses.

Many crypto portfolio trackers provide several ways to calculate your capital gains and losses. Most of them will offer straightforward specific-share accounting methods that are easy to calculate. For example, FIFO (first-in-first-out) matches the latest sale to the oldest asset in your portfolio. LIFO (last-in-first-out), on the other hand, matches the latest sale to the most recent asset you’ve bought.

FIFO, LIFO and similar methods are easy to calculate and make a lot of sense for typical stock or bond purchases. However, they aren’t always the best choice when trading volatile assets like cryptocurrencies.

TokenTax offers a type of specific-share accounting that businesses and wealthy investors use to calculate capital gains and losses. Tax minimization accounting matches each cryptocurrency sale to the coins that will have the smallest impact on your taxes.

The algorithm doesn’t just look at the buy price and sell price. For Americans, TokenTax also considers your filing status as well as your federal and state tax brackets.

Limitations

TokenTax’s claim to work with every exchange in the world is based on your ability to download CSV files of your transaction history. Coinbase is the only exchange that TokenTax integrates with directly. You must download your transaction history from each exchange you trade on and then upload the data to TokenTax. Even then, that upload ability is only available at the Premium level or higher. VIP customers get some additional help with setting up API’s at select exchanges.

TokenTax is a lot like Intuit’s TurboTax service. The only thing it does is calculate your taxes. You won’t be using TokenTax to analyze your portfolio or develop your investing strategy.

As explained later in the review, many of TokenTax’s features aren’t available at the lowest subscription rate.

Customer Support

You won’t find a general guide or walkthrough article in TokenTax’s fairly barebones help center. Most of the articles answer questions about tax policy. The only articles about using TokenTax address very specific issues.

Several of TokenTax’s subscription plans include enhanced levels of direct support ranging from live online chat sessions to in-depth consultations on difficult tax situations.

Mobile Apps

TokenTax does not offer a mobile app.

Subscription Prices

Costs
Source: TokenTax

Individual traders can choose between the four annual plans listed below. The TokenTax Enterprise plan includes all of the features in the individual plans plus more advanced calculations and reporting. You have to call for pricing on that one.

Basic

The TokenTax Basic plan costs $19 for one tax year or $35 for two tax years and has a 500-transaction-per-year limit. You can choose between TokenTax’s various calculation options, export a TurboTax-compatible file, and generate Form 8949 in PDF or CSV format.

Although it would seem like the perfect plan for people with simple needs, the TokenTax Basic plan will only work for people trading on the consumer-focused Coinbase or the trader-focused Coinbase Pro. TokenTax Basic will not pull data from any other exchange. Neither will it let you upload your transaction data.

The only other feature you get with TokenTax Basic is the ability to file an FBAR. That only applies to Americans who trade on a foreign crypto exchange and they must pay an extra $50 for the service. Even then, without the ability to upload data from anyplace other than Coinbase, this option wouldn’t make much sense.

Related: Coinbase Review: A Popular Exchange With Smart Money Behind It

Related: GDAX Review: Coinbase for Advanced Traders

Premium

The TokenTax Premium plan costs $199 for one tax year or $359 for two tax years and has a 6,000-transaction-per-year limit. In addition to the features that come with TokenTax Basic, subscribers get the ability to upload transaction data in CSV format as well as tax calculations for ICOs and crypto mining. Premium subscribers can also conduct live chat sessions with TokenTax’s tax advisors.

As with the TokenTax Basic plan, however, American TokenTax Premium subscribers who trade on foreign exchanges must pay $50 to generate a FBAR.

Pro

The TokenTax Pro plan costs $799 for one tax year or $1,439 for two tax years and has a 12,000-transaction-per-year limit. In addition to the features that come with Token Tax Premium, the Pro plan includes free FBAR-generation and priority support. This is the cheapest TokenTax plan that supports tax calculations for margin trading.

VIP

The TokenTax VIP plan costs $1,499 for one tax year or $2,699 for two tax years with no limit on transactions. At this subscription level, you get more options for integration with exchanges other than Coinbase. TokenTax support staff will help set up API integrations with Huobi, Kucoin, Novaexchange, Qryptos, Quoinex or Whaleclub. Connections with other exchanges may be possible on request.

This plan adds several support options to the features included in TokenTax Pro. The support team will help guide traders through issues such as lost or stolen coins as well as help compile documentation for IRS audits. VIP clients can also schedule 30-minute sessions to discuss crypto investing and get advice on crypto tax strategies.

As McClure explained on Rob Mitchell’s podcast, the price of TokenTax VIP is not meant to generate huge profits. Instead, it covers the cost of supporting complicated tax situations. This often includes hiring outside advisors to provide specific expertise.

User experience

Signing up for TokenTax is a simple, three-step process. The company does not require detailed information or put you through a Know-Your-Customer registration process. Your name and email address are enough to get you started.

TokenTax sign up
Source: TokenTax

To help the tax minimization algorithm do the best job calculating your taxes, TokenTax asks for your filing status and state of residency. That information is not required to use TokenTax. But without it, you may pay more than you need to.

TokenTax needs more data
Source: TokenTax

Since TokenTax’s sole purpose is to calculate taxes, the company does not offer a free trial. The only way to enter your transaction history is to pay for a one-year or two-year plan.

You must pay
Source: TokenTax

When you connect your exchange account or upload your data, TokenTax uses your personal information and preferred base currency to automatically calculate your tax liability. You can compare your potential tax savings from the company’s estimate with calculations based on LIFO and FIFO accounting.  Once done, TokenTax will automatically populate common tax forms for you to download and file with your tax return.

Crypto dashboard
Source: TokenTax

Final Thoughts

Based on the way TokenTax markets its services, this probably isn’t the crypto tax platform for you if you only make a few dozen, or even a few hundred, trades per year. The most affordable TokenTax Basic plan only applies if you do your trading on Coinbase. If you use other exchanges, then the $199 TokenTax Premium plan is the first one that lets you upload your transactions.

If your crypto trading is more intensive, though, TokenTax has a lot to offer. You can use the traditional FIFO, LIFO and other accounting methods. But if you and your tax advisor think a more nuanced approach would be better, then TokenTax’s minimization algorithm could save you much more than the cost of the company’s Premium or Pro subscriptions.

For anyone with a complex mix of crypto investments, the TokenTax VIP plan opens access to a team of in-house and 3rd party crypto tax experts.

 

Christopher Casper

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