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How is crypto taxed?
If you invest in crypto, youneed to know how it is taxed. In most countries, cryptocurrencies aresubject to tax. Generally, exchanging, spending or selling crypto areconsidered taxable events.
To calculatethe tax you owe, you’ll need to take into account your gains andlosses. And, if you are paid for work in crypto, you may need to payincome tax too. However, it’s important to be awarethat tax regulations differ from country to country. So, make sure toconsult your tax advisor. You are legally required to pay thecorrect taxes, so getting crypto tax right is essential.
How is crypto taxed?
Unfortunately, there’s nosimple answer to this question. If you trade crypto, it is likely that youwill have to pay crypto taxes. However, the amount of tax youowe 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 officialclassification 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 incrypto, it’s likely that you’re liable to pay income tax on yourcrypto earnings. This amount will depend on how much you earn. Under a certainamount, you may not need to pay tax on your income.
Generally speaking, you willonly 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 amountof tax you’re liable to pay will depend on your overall income forthe year (money from job, stocks, and crypto combined).
What is a taxable event?
A taxable event is atransaction you’re obligated to pay taxes on. These events aren’t thesame in every country. A certain activity may be considered a taxable event inone country but not in another. Usually, transactions including the saleof commodities, investments and other assets are taxable.
Generally speaking, taxableevents include:
· Selling cryptocurrency and exchanging it for fiatcurrency
· Exchanging cryptocurrency for anothercryptocurrency
· Spending cryptocurrencies. In the US, UK,Australia, and Canada, spending crypto on goods and services can be liablefor tax if you made a profit.
· Receiving crypto as part of a fork, mining, orairdrop.
In most cases, the followingactivities are not considered taxable events:
· Buying crypto with fiat currency (typicallyconsidered 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 yourgovernment’s classification of a taxable event.
How do I file my crypto taxes?
Some crypto exchanges will generatecrypto taxation forms for their users. However, if the platform youuse does not offer this service, you are responsible for calculating andfiling your taxes.
Crypto taxation by country:
EU: The EU has stated that VAT/GST andother taxes apply to any crypto transactions made to purchase goodsor services.
US: Crypto investors are required to track profits andlosses to comply with IRS regulations.
In the United States, cryptois taxed as a property rather than a currency. This means that selling, spending,receiving payments in crypto, and exchanging crypto tokens willhave tax implications. Mining crypto is treated as ordinary incomeequal to the coin’s fair market value on the day it was mined.
The amount you pay will alsodepend on whether you’re dealing with a short term capital gain (a year orless) or a long-term capital gain (more than a year). Investors areincentivised with lower tax rates for long-term capital gains.
In the UK: If you mine or buy & sell crypto, you willneed to pay tax. If crypto has been purchased, any increase in value issubject to capital gains tax. However, the tax is only payablewhen the crypto is converted into another currency or cryptocurrency.
Can I deduct losses?
In many cases, you can deductcrypto losses from your taxes.
What if I don’t file my crypto taxes?
In most countries, you’rerequired to complete your taxes regularly. Failure to fileyour taxes may result in fees, penalties, audits, interests, and eventime in prison.
Getting yourcrypto taxes right is essential. So, we’d suggest gettingprofessional assistance if you have any doubts when calculating your tax.And, please be aware that your tax obligation is highly dependent onwhere you live.
