Crypto investors often lack the information they need regarding cryptocurrency and taxes. This is primarily related to the fact that crypto tax guidance generally is far behind crypto innovation. But as the industry expands and regulators weigh in, it's essential for crypto traders to have an understanding of how cryptocurrencies are taxed.
Different regions of the world look at cryptocurrency taxation in varying ways:
By type of crypto asset: Different types of crypto, such as DeFi interest earned, airdrops, utility tokens, staking rewards, crypto payments, and mined tokens may have varying regulations depending on the region.
By transaction type: Crypto to crypto transactions, fiat to crypto, and crypto to fiat are not taxable in the same way. For instance in France, crypto to crypto transactions and holdings are not taxable events but crypto to fiat transactions are.
By profit size: The US requires reporting for $10 or more in gains, but taxes apply when gains are over $600. The UK requires tax payments on gains over £12,300.
Germany only taxes crypto when profits exceed 600 Euros. Portugal imposes zero taxes on crypto capital gains. France treats cryptocurrencies as “movable investments” and gains are taxed as ordinary income with the amount of tax paid determined by whether or not you're a professional trader.
In the UK, cryptocurrency is taxed in one of two ways: If you are earning crypto, it’s taxed as income is taxed. Crypto buys, sells, swaps and spends are subject to capital gains tax. Capital gains tax events occur when you dispose of your crypto, meaning that gains made by adding/removing assets from a liquidity pool and staking through a DeFi protocol may also be taxed as capital gains.
In the US, crypto is regulated as property so all capital gains/losses over $10 must be reported. If your taxable income is less than $40,400 annually, you do not have to pay any capital gains taxes but must still report them. Recent legislation will soon require US crypto exchanges to issue tax documentation but only for users who made $600 more in profit. Others are still required to report but must calculate it themselves.
In Canada, cryptocurrency is treated as a commodity so gains and losses need to be reported for crypto sells and buys. Canadians are subject to capital gains tax or, in some cases, business income taxes, when they sell or mine crypto. If taxed as gains the rate is 50%; when taxed as income the rate is 100%.
Asian countries vary wildly in their crypto taxation policies. China, for instance, has placed a complete ban on cryptocurrency transactions. On the other end of the spectrum, crypto-friendly Singapore breaks down crypto into 3 categories: utility tokens (no gains tax), payment tokens (no gains tax), and security tokens (gains tax). South Korea requires gains of over $2.5 million to be subject to a 20% tax.
El Salvador is a unique case because it’s the first country in the world to legalize BTC as a legal tender. Bitcoin transactions are thus exempt from capital gains taxation but rules regarding altcoins and mining remain unclear.
In order to pay your crypto taxes, you'll first need to figure how much you received in capital gains (or losses). To this you’ll need to determine the “cost basis”, which is how much profit you made between the buy and the sell/trade.
Cost basis = Purchase price (price paid when acquired) + Purchase fees.
Capital gains = Proceeds (price when sold) - Cost basis
For example, you purchased an NFT for $10,000 and paid $100 in gas fees plus a 2.5% platform fee.
Your cost basis would be: $10,000 + $100 + $250 = $10,350
Say a few months later (decades in crypto time!) you sell the NFT for $25,000 (including transaction/network fees).
Your capital gains will equal: $25,000 (proceeds) - $10,350 (cost basis) = $14,650.
Remember, in some circumstances, you may be required to report capital losses, such as when you want to use losses to offset present and/or future capital gains. You calculate losses the same way you would with gains only the amount will be a negative.
For instance, if you bought 10 Solana tokens at $250 (yikes during peak hype!) your cost basis would be $2500 (minus transaction/network fees).
If you sold your Solana tokens a few years later at $150 each, you would calculate your losses by taking the cost basis ($2500) and subtracting the proceeds ($1500) for $1000 in capital losses.
Because crypto markets are so open, vibrant and rapidly evolving, most crypto enthusiasts have multiple trading accounts, wallets, and types of digital assets. Assembling the cost basis for all your crypto trades, investments, transfers, and transactions can become very challenging for active traders and investors. Luckily, tools are emerging to bridge that gap, such as:
Crypto innovation moves much more swiftly than policy makers and regulators. cryptocurrency traders wanting to be tax compliant and legal across the board must be informed and arm themselves with the best tools available in order to participate in crypto trading without the risk of agency enforcement.
Different regions of the world look at cryptocurrency taxation in varying ways:
By type of crypto asset: Different types of crypto, such as DeFi interest earned, airdrops, utility tokens, staking rewards, crypto payments, and mined tokens may have varying regulations depending on the region.
By transaction type: Crypto to crypto transactions, fiat to crypto, and crypto to fiat are not taxable in the same way. For instance in France, crypto to crypto transactions and holdings are not taxable events but crypto to fiat transactions are.
By profit size: The US requires reporting for $10 or more in gains, but taxes apply when gains are over $600. The UK requires tax payments on gains over £12,300.
Germany only taxes crypto when profits exceed 600 Euros. Portugal imposes zero taxes on crypto capital gains. France treats cryptocurrencies as “movable investments” and gains are taxed as ordinary income with the amount of tax paid determined by whether or not you're a professional trader.
In the UK, cryptocurrency is taxed in one of two ways: If you are earning crypto, it’s taxed as income is taxed. Crypto buys, sells, swaps and spends are subject to capital gains tax. Capital gains tax events occur when you dispose of your crypto, meaning that gains made by adding/removing assets from a liquidity pool and staking through a DeFi protocol may also be taxed as capital gains.
In the US, crypto is regulated as property so all capital gains/losses over $10 must be reported. If your taxable income is less than $40,400 annually, you do not have to pay any capital gains taxes but must still report them. Recent legislation will soon require US crypto exchanges to issue tax documentation but only for users who made $600 more in profit. Others are still required to report but must calculate it themselves.
In Canada, cryptocurrency is treated as a commodity so gains and losses need to be reported for crypto sells and buys. Canadians are subject to capital gains tax or, in some cases, business income taxes, when they sell or mine crypto. If taxed as gains the rate is 50%; when taxed as income the rate is 100%.
Asian countries vary wildly in their crypto taxation policies. China, for instance, has placed a complete ban on cryptocurrency transactions. On the other end of the spectrum, crypto-friendly Singapore breaks down crypto into 3 categories: utility tokens (no gains tax), payment tokens (no gains tax), and security tokens (gains tax). South Korea requires gains of over $2.5 million to be subject to a 20% tax.
El Salvador is a unique case because it’s the first country in the world to legalize BTC as a legal tender. Bitcoin transactions are thus exempt from capital gains taxation but rules regarding altcoins and mining remain unclear.
In order to pay your crypto taxes, you'll first need to figure how much you received in capital gains (or losses). To this you’ll need to determine the “cost basis”, which is how much profit you made between the buy and the sell/trade.
Cost basis = Purchase price (price paid when acquired) + Purchase fees.
Capital gains = Proceeds (price when sold) - Cost basis
For example, you purchased an NFT for $10,000 and paid $100 in gas fees plus a 2.5% platform fee.
Your cost basis would be: $10,000 + $100 + $250 = $10,350
Say a few months later (decades in crypto time!) you sell the NFT for $25,000 (including transaction/network fees).
Your capital gains will equal: $25,000 (proceeds) - $10,350 (cost basis) = $14,650.
Remember, in some circumstances, you may be required to report capital losses, such as when you want to use losses to offset present and/or future capital gains. You calculate losses the same way you would with gains only the amount will be a negative.
For instance, if you bought 10 Solana tokens at $250 (yikes during peak hype!) your cost basis would be $2500 (minus transaction/network fees).
If you sold your Solana tokens a few years later at $150 each, you would calculate your losses by taking the cost basis ($2500) and subtracting the proceeds ($1500) for $1000 in capital losses.
Because crypto markets are so open, vibrant and rapidly evolving, most crypto enthusiasts have multiple trading accounts, wallets, and types of digital assets. Assembling the cost basis for all your crypto trades, investments, transfers, and transactions can become very challenging for active traders and investors. Luckily, tools are emerging to bridge that gap, such as:
Crypto innovation moves much more swiftly than policy makers and regulators. cryptocurrency traders wanting to be tax compliant and legal across the board must be informed and arm themselves with the best tools available in order to participate in crypto trading without the risk of agency enforcement.
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