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How is Cryptocurrency Income Taxed

Last updated: Wednesday, 13 October 2021

Often cryptocurrency gains are taxed under Capital Gains Tax. But what about income derived from cryptocurrency activities like mining, staking or airdrops? Let's take a look at Income Tax and how it applies to certain crypto situations.

Income tax

Just as income can originate from work or investments and be taxed under Income Tax, so too can crypto income. In terms of cryptocurrency, the parallels look roughly like this:

  • Getting paid in crypto
  • Staking rewards
  • Mining tokens
  • Airdrops
  • DeFi interest
  • Referral bonus

How much do you pay?

In most countries, the amount of capital gains tax owed on crypto depends on how long you’ve held your assets, and in which income tax bracket you are. Typically, the higher your income, the greater the percentage of tax you'll pay on capital gains.

Allowances

Some countries will allow a certain amount of capital gains to be tax-free. In Germany for example, total capital gains under €600 per year are tax-free.

Could you pay both income and capital gains tax?

Yes. How crypto is received, and disposed of, are seen as two separate events. Let’s imagine your receive crypto via an airdrop on Jan 1, and that the coins are worth $50. This $50 is income, and will form part of your total taxable income. Come June 1, you decide to convert you airdropped coins into dollars.

Those same coins are now worth $80. As you paid no fees in receiving the airdropped coins, the gain is a straightforward calculation of $80-$50 = $30. After disposing of your airdropped coins you'll need to pay Capital Gains Tax on that $30, even though you're paying Income Tax on the original $50.

Learn more! Crypto Tax 101 What is Cryptocurrency Capital Gains Tax?

Crypto Income Tax in the USA

In the US, Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket. Some of these transactions may also be subject to Capital Gains Tax upon disposal. Income can come from:

  • Getting paid in crypto - like a salary.
  • Staking rewards and liquidity pools - like dividends.
  • Forks - excluding soft forks when no new coin is received.
  • Mining tokens - like income.
  • Airdrops - like bonuses.
  • DeFi interest - like bank account interest.
  • Referral bonus - like commission.

How to report Income Tax to the IRS?

Fill in Schedule 1 Form 1040: Any crypto earned as an income needs to be added to Schedule 1 Form 1040.

Crypto Income Tax in Australia

In Australia, Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket rate. Income can come from:

  • Getting paid in crypto - like a salary.
  • Staking rewards and liquidity pools - like dividends.
  • Mining tokens - like income, only at trader level. Hobby miners do not pay income tax.
  • Airdrops - like bonuses.
  • DeFi interest - like bank account interest.
  • Referral bonus - like commission.

How to report crypto tax to the ATO?

Crypto investors in Australia need to declare their profits, losses and income in their Individual Tax Return form.You can file from the1st of July and the deadline is the31st of October 2022.

Crypto Income Tax in the UK

In the United Kingdom, Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket. Income can come from:

  • Getting paid in crypto - known as 'money's worth' and is subject to National Insurance too.
  • Staking rewards and liquidity pools - like dividends.
  • Mining tokens - like income, only at trader level. Hobby miners do not pay income tax.
  • Airdrops - like a bonus in most instances.
  • DeFi interest - like bank account interest.
  • Referral bonus - like commission.

How to report crypto tax to the HMRC?

You need to report any gains from the previous year in your Self Assessment Tax Return by the 31st of January 2022.

How do you report your crypto Income Tax?

A crypto tax calculator like Koinly can do crypto income tax reporting for you! Koinly is designed to import all of your crypto trades and transactions from the exchanges and wallets you use, and organises your data into capital gains and income.

Because each country treats crypto taxes slightly - or very - differently, you can tell Koinly how to deal with 'grey area' income types like airdrops, staking rewards, mining and forks. This is done in your Portfolio settings.

You can change your crypto income tax settings on Koinly

You're also able to tell Koinly which deposits - that is, crypto coming in to your account - was income from sources like airdrops, mining, staking and so on.

To do this, select the transaction in question and simply tag any airdrops, staking rewards, mining and forks. Koinly does this automatically in most cases but sometimes the data imported may not tell Koinly that a transaction is a Reward or Mining income.

You can set Koinly crypto tax calculator to treat airdrops and rewards as income

Once everything is correct, go ahead and download your crypto tax report from the Koinly Tax Reports page. Koinly offers a number of different tax reports to choose from. At tax time, you can submit the form to your accountant, or submit your taxes yourself.

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