You may have come across the term SaaS before, and ignored it as commercial jargon. It stands for Software As A Service and essentially means the delivery of service – such as crypto tax reporting – entirely via software over the internet. A lot of services central to our lives are now delivered in this way.
Historically, tax accounting might involve visiting an office with a ring binder, or shoe box of paperwork, which would be manually sifted through by your accountant with a disapproving glare.
SaaS crypto tax services do much (but not all) of that heavy lifting for you. You start with a familiar online registration process that only requires username, password and country. It is important that you are honest about where you live simply because the accounting reports generated will be tailored to the specific rules in that country.
Once registered you need to give the service digital access to all your crypto transactions; not just for the tax year in question, but as far back as you can go.
If you have a very light crypto footprint – limited to one exchange for example – this process can literally take minutes, which is how many crypto tax services promote their service, because of the wonders of API access. If your activity extends to self-custody, CEFI, DEFI, NFTs and beyond, be warned that despite the marketing rhetoric, it will take considerably longer.
One burning question you likely want answered up front is whether crypto tax services share details with tax authorities? The answer they give is no, they simply offer a service to help calculate your crypto tax liabilities. What you choose to do with that information is up to you.
API access to Exchanges
When you create an account with a cryptocurrency exchange you’ll usually get access via desktop, mobile and app as standard. What the average user isn’t aware of is that you also get what is known as API access.
An API is a data feed that can give an external service access to your account. for example, to actively manage your trading automatically via a bot, benefiting from speed and logic defined in code.
Crypto tax services utilise this API access to automatically pull your historic trading data into their accounting system. The process is very straightforward. Within the settings of your exchange account you click/tap a button to create a new API key, give it a label for the crypto tax service, then make a note of the API secret this generates.
You then add the Exchange – selecting from a dropdown list – within the crypto tax service, name it and input both those bits of detail – API key and secret. It will then digest your trading activity.
Unlike the trading bot, tax services only require Read access. Most exchange API settings are set to Read only by default because giving an external service the ability to deposit, trade or withdraw is clearly very risky.
You’ll need to repeat the process for each exchange where you have an account and have had trading activity. The service will compute your tax liabilities automatically based on the data within the API feed in a matter of minutes.
We emphasised ‘within the API feed’ because as with most things in life, there are exceptions. Some exchanges exclude certain types of transaction e.g deposits, withdrawals or derivatives. So when you select the exchange in question from the list provided by the crypto tax service, look carefully at the details provided for potential exceptions. We’ll discuss below how to handle those.
Leave a Reply