Crypto taxation needs more awareness as more and more people and investment funds are indulging in crypto trading with countries adapting to it gradually. Here is all you need to know about reporting crypto taxes.
Is cryptocurrency taxable?
Cryptocurrency is considered an asset and is taxable based on various conditions – Nature of use, period of holding, etc.
While most people interacting with crypto need to file returns, you need to be aware of how and which of the transactions are taxable. To understand the how digital currency or crypto is taxed, you must understand why governments choose to classify it as a capital asset, first.
Though the ultimate motive of the invention of digital currency is to have a currency independent of government/centralized control that can be transacted globally, the infrastructure is not ready yet. Only a few companies like Tesla accept Bitcoin for payments. Most other believers of crypto leverage the volatility of the crypto currency and buy/sell them in the exchange to make money either short-term or long-term.
What crypto transactions are taxable and at what rates?
|No.||Type of cryptocurrency transaction||Taxable||Tax classification|
|1||Buying cryptocurrency from fiat money||No||–|
|2||Selling cryptocurrency to fiat money||Yes||Captial gains tax|
|3||Trading cryptocurrency for an equivalent cryptocurrency||Yes||Capital gains tax|
|4||Paying cryptocurrency a merchant for product/service(Crypto debit cards)||Yes||Captial gains tax|
|5||Receiving cryptocurrency airdropped tokens from hard fork||Yes||Income tax|
|6||Mining cryptocurrency||Yes||Income tax|
|7||Getting paid in cryptocurrency (salary, sale of product/service)||Yes||Income tax|
|8||Transferring cryptocurrency between wallet/exchange||No||–|
|9||Gifting/donating cryptocurrency (within admissible limits)||No||–|
Note: The information provided is very general and applies to most countries including US, UK, Australia, etc. Some countries like Dubai don’t charge taxes where you can cash out crypto tax-free legally. So, check if your country taxes crypto the same way and the respective tax rates.
Read our detailed writeup on crypt taxation for a deeper understanding on how crypto is taxed?
Reporting taxes on cryptocurrency
1. Know the Crypto laws in your country
Knowing the regulations and tax rates should be your first step to staying compliant with the tax department. Don’t worry, we have done the footwork for you. Download our crypto taxation manual for every country.
2. Collect the list of crypto transactions made
Track down all our transactions within and outside exchanges. Your list of crypto transactions must include buying, selling, swapping within exchange(s) and outside of it, airdrops, mined value, gifted, etc.
For those transacting strictly withing crypto exchanges, the process should be easy, for others using a wallet, track them using the wallet address and the blockchain you have them.
3. Calculate crypto taxes
Calculating crypto taxes could be complex depending on your crypto transactions. But we have got you covered on that too. Calculate your crypto taxes through this portal.
4. Add it to the tax form
Crypto predominantly is taxed under capital assets. So, if you have made and capital loses it can balance it out against crypto gains or vice versa minimizing taxes. Further you can also do the same withing crypto assets. So be aware of the best practices and optimize taxes in the best way or contact a Tax optimization expert at it.
5. File your crypto taxes
Fill in the transaction and tax information, verify and file it in the corresponding tax portal of the tax department.
Tax filing particularly for crypto can be hectic with hundreds of transactions to track, calculate and report. What if you can leave these mundane tasks to someone else and they might help you reduce taxes?
Yes, we can optimize taxes for you, your business and offer a customized financial solution 100% legal and burden free. Book a free tax optimization call now!