If you invest in crypto, you need to know how it is taxed. In most countries, cryptocurrencies are subject to tax. Generally, exchanging, spending or selling crypto are considered taxable events.
To calculate the tax you owe, you’ll need to take into account your gains and losses. And, if you are paid for work in crypto, you may need to pay income tax too. However, it’s important to be aware that tax regulations differ from country to country. So, make sure to consult your tax advisor. You are legally required to pay the correct taxes, so getting crypto tax right is essential.
How is crypto taxed?
Unfortunately, there’s no simple answer to this question. If you trade crypto, it is likely that you will have to pay crypto taxes. However, the amount of tax you owe will depend on your country of residence, how long you’ve held your crypto, the type of activity, and a range of other factors.
A cryptocurrency’s official classification within a jurisdiction will determine how it is taxed. Germany, for example, has no tax on crypto that is held for over a year.
If you are paid for work in crypto, it’s likely that you’re liable to pay income tax on your crypto earnings. This amount will depend on how much you earn. Under a certain amount, you may not need to pay tax on your income.
Generally speaking, you will only be taxed on your profits. If you bought BTC for $10,000 and sold it for $30,000, you’ll only be taxed on the $20,000 profit. And, the amount of tax you’re liable to pay will depend on your overall income for the year (money from job, stocks, and crypto combined).
What is a taxable event?
A taxable event is a transaction you’re obligated to pay taxes on. These events aren’t the same in every country. A certain activity may be considered a taxable event in one country but not in another. Usually, transactions including the sale of commodities, investments and other assets are taxable.
Generally speaking, taxable events include:
Selling cryptocurrency and exchanging it for fiat currency
Exchanging cryptocurrency for another cryptocurrency
Spending cryptocurrencies. In the US, UK, Australia, and Canada, spending crypto on goods and services can be liable for tax if you made a profit.
Receiving crypto as part of a fork, mining, or airdrop.
In most cases, the following activities are not considered taxable events:
Buying crypto with fiat currency (typically considered an unrealised gain as the position has not been sold)
Donating crypto to a tax-exempt organisation
Gifting crypto under a specified limit
Transferring crypto from one wallet (that you own) to another wallet (that you own)
Please be sure to check your government’s classification of a taxable event.
How do I file my crypto taxes?
Some crypto exchanges will generate crypto taxation forms for their users. However, if the platform you use does not offer this service, you are responsible for calculating and filing your taxes.
Crypto taxation by country:
EU: The EU has stated that VAT/GST and other taxes apply to any crypto transactions made to purchase goods or services.
US: Crypto investors are required to track profits and losses to comply with IRS regulations.
In the United States, crypto is taxed as a property rather than a currency. This means that selling, spending, receiving payments in crypto, and exchanging crypto tokens will have tax implications. Mining crypto is treated as ordinary income equal to the coin’s fair market value on the day it was mined.
The amount you pay will also depend on whether you’re dealing with a short term capital gain (a year or less) or a long-term capital gain (more than a year). Investors are incentivised with lower tax rates for long-term capital gains.
In the UK: If you mine or buy & sell crypto, you will need to pay tax. If crypto has been purchased, any increase in value is subject to capital gains tax. However, the tax is only payable when the crypto is converted into another currency or cryptocurrency.
Can I deduct losses?
In many cases, you can deduct crypto losses from your taxes.
What if I don’t file my crypto taxes?
In most countries, you’re required to complete your taxes regularly. Failure to file your taxes may result in fees, penalties, audits, interests, and even time in prison.
Getting your crypto taxes right is essential. So, we’d suggest getting professional assistance if you have any doubts when calculating your tax. And, please be aware that your tax obligation is highly dependent on where you live.
Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.