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Is Crypto Taxed?

Last updated: Tuesday, 19 October 2021

Wondering if your crypto gains will come with a tax bill?Do you have to pay taxes on bitcoin? Is crypto taxed in your country? Let's take a look at whether cryptocurrency is taxed, and what you need to do to stay on the right side of the law.

Koinly explains how cryptocurrency is an asset and not a currency

Yes, crypto is taxed.

The most basic way to think of crypto from a tax perspective is that crypto can be taxed, or not, on the way in, and the way out.

You won't pay taxes on crypto on the way in:

  • Buy crypto
  • Receive crypto as a gift
  • Move crypto between wallets

On the way out:

  • Donate crypto
  • Give crypto as a gift (not the case in UK, Australia, Ireland)
  • Move crypto between wallets

You will pay taxes on crypto on the way in:

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

On the way out:

  • Sell crypto
  • Swap crypto
  • Spend crypto
  • Gift crypto in certain countries like Australia, UK, Ireland

Why is crypto taxed at all - isn't it money?

While most of us understand crypto to be a currency in its own right, this is not the way our governments have decided to swing. Cryptocurrencies are not considered money in most parts of the world, as it does not have legal tender. The exception, right now, is El Salvador, which became the first country to accept bitcoin specifically as legal tender in June 2021.

Legal tender, like a dollar note, or even a gold bullion coin, does not get taxed as capital. In fact, it really doesn’t get taxed at all. That is, the money itself is not taxed. This is a different story if you’re a forex trader and you’re making money off the sale of poor performing fiat currencies. But in everyday terms, it's the act of making money through realising a profit, or by working for it, where the taxes come in. 

So while crypto could be viewed and certainly used as legal tender, that would be no fun for the taxman. Instead, crypto is classified as property in most countries, and property is an ‘asset’ for tax purposes.

When will you pay Capital Gains Tax

Your crypto investment is viewed as an asset by most tax authorities around the world.

When that asset changes hands - either by sale, swap, spending it or giving it as a gift in certain countries - this event is called a a disposal. If there is a profit at the point of disposal, the profit can be taxed as a capital gain. Before you can arrive at a profit, you need to know what your Cost Basis was - in essence what the cost of the crypto asset was.

Capital Gains Tax

A capital gain is the profit or loss you make from trading or selling any asset, including crypto:

Capital gain = selling price - buying price - fees

Your buying price + associated fees are also known as the cost-basis or just basis in accounting lingo.

For example, if you bought 1 BTC for 1000 USD and also paid a fee of $10, then your cost basis is $1010. If you later sell the Bitcoin for $1500 then you will realize a capital gain of $1500 - $1000 - $10 = $490. You will have to pay a capital gains tax on this amount - we will go deeper into how much tax you will have to pay in the next section.

Koinly explains how crypto capital gains tax works

In most, but not all countries, you could pay CGT on your crypto disposals in these situations:

  • Selling: Profits from selling crypto for Fiat = CGT
  • Swapping: Profits from swapping crypto with crypto = CGT
  • Spending: Using cryptocurrency to purchase goods and services = CGT
  • Gifting: Perceived profits made from gifting crypto = CGT

Gifting is taxed in Australia, Ireland in the UK, unless the crypto gift is given to a spouse or civil partner.

Koinly explains when crypto is taxed as capital gains

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, and crypto sold after a holding period of one year is tax-free. Australia offers a 50% Capital Gains Tax discount on crypto held for a year or more.

Koinly explains how crypto tax has certain allowances specific to each country

Short term Capital Gains Tax

Typically, any gain made from the disposal of a crypto asset - held less than a year - is taxed at the same rate as your personal income tax rate.

Long term Capital Gains Tax

Many countries allow special treatment for gains made on assets that were held for at least one year for example.

  • USA applies a reduced capital gains tax rate from 0%, 15% or 20% tax depending on individual or combined marital income.
  • Australia allows a 50% capital gains discount
  • Germany does not tax capital gains on crypto held for more than 1 year.

What is a Capital Loss?

Just as your crypto disposals can raise a profit, they can also introduce a loss. Most countries will allow you to use a capital loss to 'offset' any gains you made in the same tax year.

When do you pay Income Tax on crypto?

Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket. Remember, the day that you dispose of the crypto income you earnt you will very likely be up for 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.

Crypto Tax in the USA

Cryptocurrency is viewed as property and is taxed in the United States as either Capital Gains Tax or Income Tax. You won't pay tax when you buy crypto, hold crypto, or move your crypto between wallets. Gifting crypto is tax-free, provided that your crypto gift does not exceed $15,000 in value. For gifts over this threshold, donors may have to file a Gift Tax Return Form 709. Similarly, donations are not subject to Capital Gains Tax, provided the donation is made to a qualified charitable organization. If the donation is more than $500, donors may need to submit Form 8283 signed by their chosen recipient.

How much will you pay? Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax bracket. In the United States, the amount of tax you pay on crypto gains depends on how long you’ve held your assets for, your personal Federal Capital Gains Tax rate, and the personal Income Tax bracket you're in. You'll pay less tax on assets held for a year plus.

Capital Gains Tax: Sell, Swap, Spend crypto

Income Tax: Getting paid in crypto, staking rewards and liquidity pools, some forks, mining, airdrops, DeFi interest, referral bonus.

Crypto Tax in the UK

Like most countries around the world, the UK does not treat cryptocurrency as currency or money. Instead, the HMRC views cryptocurrency as property and its taxed as either Capital Gains Tax or Income Tax. You won't pay tax when you buy crypto, hold crypto, or move it between wallets. Cryptocurrency gifts to your spouse are also non-taxed and can effectively allow you to double your tax-free allowance in a given tax year. Donations to registered charity are also tax-free.

How much will you pay? In the United Kingdom, the amount of capital gains tax owed on crypto depends on how long you’ve held your assets and on Income Tax rate. UK residents are allowed an allowance of capital gains that are non-taxed for individuals up to £12,000 in capital gains across all capital assets. (Annual Exempt Amount.) In addition, the standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on. You'll pay less Capital Gains Tax on assets held for a year plus.

Capital Gains Tax: Sell, Swap, Spend and Gift* crypto (*to non-spouse)

Income Tax: Getting paid in crypto, staking rewards and liquidity pools, some forks, mining, airdrops, DeFi interest, referral bonus.

Crypto Tax in Australia

In Australia, cryptocurrency is viewed a property and is taxed as either Capital Gains Tax or Income Tax. You won't pay tax when you buy crypto, hold crypto, or move it between wallets. Donations may also be tax-free provided the recipient is a deductible gift recipient.

How much will you pay? In Australia, 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.  However, if your total income is less than $18,200 a year, you won't pay any Income or Capital Gains Tax. You'll pay 50% less Capital Gains Tax on assets held for a year plus.

Capital Gains Tax: Sell, Swap, Spend and Gift crypto.

Income Tax: Getting paid in crypto, staking rewards and liquidity pools, some forks, mining (not at hobby level), airdrops, DeFi interest, referral bonus.

How do you report your crypto taxes?

A crypto tax calculator like Koinly can track all your crypto transactions and work out the tax you owe. It would be an understatement to say that this is a time saver, but perhaps more importantly, Koinly can save you money owed on tax.

That's because Koinly connects seamlessly with over 600 wallets and exchanges to import ALL your crypto trades and calculate an accurate crypto tax report.

Koinly will show you your short and long term capital asset position, what your unrealized gains look like, and what your taxable income is for the year. Even better, you get all this with a free Koinly plan!

Getting set up is easy, and once it's tax time, simply generate the right tax report for your country from Koinly's menu of tax reports. You'll then be able to file your crypto taxes easily - and safely - knowing that you have all your crypto trades accounted for.

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