Cryptocurrency is a digital or virtual asset that exists only on the web and secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology that allows them to exist outside the control of governments and central authorities. That means that this virtual system allows users to make crypto transactions online anonymously without being controlled by banks, judicial, or tax authorities.
It is this specificity of virtual money that forces government agencies to regulate this financial sector and work out the principles of taxation. The attitude towards cryptocurrencies in the world differs, and they are illegal in some countries. In this review we discuss whether you need to declare your virtual assets, when you’ll owe taxes on crypto, and how to pay crypto taxes.
About Cryptocurrency Taxes
With the growing popularity of cryptocurrency, we are seeing an increase in taxation. If you are one of those who make good money from crypto, you will probably be wondering how your transactions and other crypto activities will impact your crypto taxes. Let’s look at taxable and non-taxable events criteria and how to pay taxes on crypto.
Non-taxable events
Non-taxable events are the transactions that don’t result in a tax. You do not trigger a taxable event when you:
- Buy crypto with fiat money and own them.
- Donate crypto to a tax-exempt non-profit or charity.
- Receive crypto as a gift.
- Give crypto as a gift.
- Transfer crypto between your own accounts.
Taxable Events
Taxable events related to cryptocurrency include:
- Exchanging cryptocurrency for fiat money – government-issued currency.
- Spending crypto on goods and services.
- Converting one crypto to another.
Capital Gains
For better or worse, the Internal Revenue Service applies the rules of capital gains tax to Bitcoin and Ethereum too. That means that you owe taxes on crypto if you are selling, swapping or spending all types of cryptocurrencies at a profit. It is taxed as a capital gain.
Income
If you accept cryptocurrency as payment for goods or services, you must report it as business income. Тhe same applies to mining – your income gained from this activity counts as business income. If you are earning digital assets it’s taxed like an income.
Crypto Tax Rates Around The World
The tax laws around the cryptocurrencies are changing rapidly and some countries are seeking to tax users on cryptocurrency profits. It becomes a specific and additional way to bring money back into the economy. Let’s dive into the cryptocurrency tax rates around the world and understand how to pay taxes on crypto in different countries.
USA
The crypto capital gains tax rate in the USA is based on the general Capital Gains Tax rules. The tax rate you’ll pay on your crypto depends on how long you’ve held your asset for and how much you earn. If you’ve held crypto for less than a year, you’ll pay the short-term Capital Gains Tax rate. If you’ve held crypto for more than a year, you’ll pay the long-term Capital Gains Tax rate.
For the 2022 tax year the rates in USA are:
| Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
| 10% | $0 – $10,275 | $0 – $14,650 | $0 – $20,550 | $0 – $10,275 |
| 12% | $10,276 – $41,775 | $14,651 – $55,900 | $20,551 – $83,550 | $10,276 – $41,775 |
| 22% | $41,776 – $89,075 | $55,901 – $89,050 | $83,551 – $178,150 | $41,776 – $89,075 |
| 24% | $89,076 – $170,050 | $89,051 – $170,050 | $178,151 – $340,100 | $89,076 – $170,050 |
| 32% | $170,051 – $215,950 | $170,051 – $215,950 | $340,101 – $431,900 | $170,051 – $215,950 |
| 35% | $215,951 – $539,900 | $215,951 – $539,900 | $431,901 – $647,850 | $215,951 – $323,925 |
| 37% | $539,901+ | $539,901+ | $647,851+ | $323,926+ |
Canada
Canada doesn’t have a specific Capital Gains Tax rate. Instead, the gains are taxed at the same rate as your Federal Income Tax rate and Provincial Income Tax rate.
For the 2022 tax year the rates in Canada are:
| Tax Rate | Income |
| 15% | On your first $50,197 of taxable income |
| 20.5% | $50,197 – $100,392 |
| 26% | $100,392 – $155,625 |
| 29% | $155,625 – $221,708 |
| 33% | $221,708+ |
Australia
If you’re selling, trading, spending or gifting crypto as an individual (investor), the percentage you’ll pay on Capital Gains Tax is the same as your Income Tax rate. Your income tax rate depends on your total income during the tax year. These activities may be liable to pay crypto trading taxes.
For the 2022 tax year the ATO Individual Income Tax Rates in Australia are:
| Tax Rate | Income |
| 0% | $0 – $18,200 |
| Nil + 19% of excess over 18,200 | $18,201 – $45,000 |
| $5,092 + 32.5% of excess over 45,000 | $45,001 – $120,000 |
| $29,467 + 37% of excess over 120,000 | $120,001 – $180,000 |
| $51,667 + 45% of excess over $180,000 | $180,001+ |
Europe
As the taxation of crypto is still very new, some countries are trying to figure out how to regulate this field. As of right now, the European countries still have some hiccups in their system, because some of the tax laws are extreme, while others lean on the side of the user.
- In Germany you may run into crypto income tax if you receive a salary in crypto or you mine crypto.
- France amended its tax regime of profits generated through cryptocurrency sales, reducing it from up to 45% to 19%. The capital gains of selling crypto was reclassified to movable property.
- If you are a business using cryptocurrency in Portugal, or a professional trader, you may be subject to taxation. Selling and buying cryptocurrency are tax-free. This activity is not considered for investment or income tax as of yet.
- In Switzerland professional investors will be taxed, the sale of crypto by individuals is tax-exempt.
- In Slovenia there will be no tax on cryptocurrency profits received by individuals while the business or professional activities may be liable to pay tax.
- In Norway, selling crypto is qualified as capital gains and is liable for 25% tax. Crypto mining also is considered as an income and thus is taxable. That means that you owe taxes on selling crypto.
- In the UK, you are eligible to pay capital gains income tax on crypto sales.
- In the Netherlands Income taxation occurs on activities or interests such as mining, staking, and trading.
- In Spain all citizens must disclose their profits from cryptocurrency trading. Short term trades may be taxed from 24 – 52% on profits, long term – could be taxed up to 23%.
- In Italy you are liable to pay a flat rate of 26% on sales.
Asia
While most crypto transactions are subject to capital gains tax on the income, there are several countries in Asia that do not tax gains on crypto price fluctuation in an effort to encourage innovation and adopte digital currency. Some other territories in Asia that do not tax bitcoin gains include Malaysia, Singapore, Hainan, China.
How To Report Crypto On Taxes
If you answer “yes” to the question on the standard form 1040 tax return about whether you were involved in any virtual currency transactions during the year, then here is what you need to do:
Keep Track Of All Transactions
Keep track of all receipts for each crypto transaction, for instance, how much you paid or how long you held the crypto in your wallet and how much you sold it for.
Fill Out The Appropriate Tax Forms
For reporting crypto taxes you need to fill out some tax forms depending on how you used your cryptocurrency assets and send it. These include the followings:
- Form 8949. In this form you report every crypto purchase or sale, the total number of coins, the date you purchased the cryptocurrency and sold it, the prices you bought and sold, as well as your gain and loss.
- Schedule D. This form is for reporting your total capital gains and losses from all your investments, including crypto.
- Schedule C. Report your income or loss from your business or a profession as a sole proprietor. For example, if you’re running a crypto mining business, you must owe self-employment cryptocurrency taxes.
- Schedule 1. Fill in the Line 8 to report income or adjustments to income that can’t be entered directly on
- Form 1040. For example, if your crypto mining is a hobby, you won’t owe self-employment tax and this is generally reported on Schedule 1 as other income.
File A Tax Return
What does it mean? A tax return is a documentation filed with a tax authority. In these documents you report your expenses and income or other relevant financial information, calculating your tax liability or schedule tax payments. Tax returns must be filed annually.
What Happens If You Don’t Send A Report?
If you don’t intentionally report your cryptocurrency gains and income it is considered as a tax fraud. The IRS can enforce a number of penalty fees for this, including criminal prosecution, several years in prison, along with a fine of up to $250,000.
How To Calculate Crypto Taxes
To calculate your taxes for cryptocurrency you simply apply this formula:
Fair Market Value – Cost Basis = Capital Gain/Loss
In the case of cryptocurrency taxes, Fair Market Value is typically the sale price in USD terms.
Cost Basis represents how much your cryptocurrency costs you plus all other costs associated with purchasing (transaction fees, etc.)
Fairly straightforward to see this formula in action. You buy 1 Ethereum for $1000 – it is your Cost Basis. If you sell or trade it when it’s worth $1500 – is the Fair Market Value. In this case we get the formula:
$1500 (Fair Market Value) – $1000 (Cost Basis) = $500 Gain
How To Reduce Cryptocurrency Taxes
Below you will find a list with the 6 ways which could help you to minimize taxes on cryptocurrency.
Long-Term Crypto Holding
Hold your cryptocurrencies for at least one year before selling. Long-term crypto holding helps to qualify your gains as a preferential long-term capital gains rate and almost halve your tax rate.
Make Up Profits With Losses
Уou can claim losses on other investments when you realize your cryptocurrency profit. If, for example, you made $5000 for selling Bitcoin, but lost $5000 for selling Ethereum, you are not obliged to pay crypto currency taxes since you are at a loss.
Wait Out The Tax Cut
In order to reduce crypto taxes try to wait out a lower tax rate. You can also move to a lower tax state which would allow you to sell your assets while owing less in taxes on crypto.
Mining Expense Statement
We know that mining comes with considerable expenses – internet service charges, electricity, PCs, servers. This is precisely the way to reduce your taxes on cryptocurrency by deducting these costs against your mining income. Though the deducted amount from incomes will depend on the kind of your activities – hobby or business.
Accepting Cryptocurrency Payments Is Easy With Baxity
Аs you can tell it is necessary to pay crypto taxes not only for those who buy cryptocurrencies and sell them, but also for those who are engaged in business and accept payments with cryptocurrencies for services or goods.
For our part we also recommend using another way to minimize your crypto taxes. For businessmen the best solution is the cryptoprocessing service, for individuals – digital coupons and vouchers marketing platforms, and more specifically Bitnovo and Crypto Voucher.
You may ask how these services could reduce your taxes on crypto? The thing is your cryptocurrency transactions can be tracked by the IRS who treats all cryptocurrency as capital digital assets and the money you gain from this is taxed at different rates.
The cryptoprocessing service from Baxity is a business tool to save your money and by connecting the software to your site with the support and help of Baxity, among the main advantages you get the crypto transactions anonymity since it becomes impossible to track your transfers from your profile. And plus, as a seller you save on commission fees and use liquidity, that is, you can easily convert the crypt into cash.
As for individuals Bitnovo Coupons and Crypto Vouchers are the simple way to get cryptocurrencies and do not worry that your data can be stolen on the network. Using these kinds of prepaid-cards your personal and financial information is reliably protected and hidden. The anonymity of transactions is the most attractive feature when there is no need to enter a bank account or card number details in order to redeem the voucher and get crypto.
You can buy Bitnovo Coupons and Crypto Vouchers on Baxity Store with just one click and redeem your code on the websites accepting it.
Frequently Asked Questions
Do I Have To Pay Taxes On Crypto?
Yes, you do. All your cryptocurrencies are taxable since the IRS considers them as a “property” for tax purposes. It means your digital currency is taxed in the same way as any other assets you own. It will be your duty to obey the law paying taxes on crypto.
What Are Crypto Tax Rates In 2022?
- If you’ve earned crypto through mining or staking, this is considered as an ordinary income and will be taxed from 10% – 37%.
- If you’ve held crypto for more than 1 year, you’ll be subject to the long-term capital gains tax rate – from 0%-20%.
- If you’ve held your crypto for less than 1 year, you’ll be subject to the short-term capital gains tax rate – from 10% – 37%.
All the mentioned rates percent depends on your income level.
How To Reduce Cryptocurrency Taxes?
- Hold your short-term crypto investments until they become long-term.
- Offset your capital gains on your assets with your capital losses.
- Sell your crypto investments during a year that you made less money.
- Move to a state that does not have a state income tax.
- Wait out the tax cut.
- Deduct the costs of internet service charges, electricity, PCs and servers against your mining income.
How To File Cryptocurrency Tax Return?
Follow these 5 steps to file your crypto taxes:
- Calculate your crypto gains and losses;
- Complete IRS Form 8949;
- Include your totals from 8949 on Form Schedule D;
- Include any crypto income;
- Complete the rest of your tax return.
