Lost when it comes to Bitcoin tax? Wherever you live in the world - your tax office wants to know about your BTC. Here’s everything you need to know about Bitcoin taxes.
Do you have to pay tax on Bitcoin?
Yes. You need to pay tax on Bitcoin, as well as all other cryptocurrencies. The tax you’ll pay depends on the transaction you’re making and where you live. You can learn more about Bitcoin and crypto tax in your country in our crypto country tax guides.
In general, you’ll pay either Capital Gains Tax or Income Tax on Bitcoin - depending on the type of transaction.
If you’re selling BTC for fiat currency, trading BTC for another cryptocurrency or spending BTC on goods and services - you’ll pay Capital Gains Tax on any profit you make from that transaction. In some countries, gifting BTC is also subject to Capital Gains Tax.
On the other hand, if you’re earning Bitcoin - like mining BTC or earning interest on BTC - you’ll pay Income Tax based on the fair market value of BTC at the time you receive it instead.
Now you know how Bitcoin is taxed, let’s look at how you can do your Bitcoin taxes.
How to prepare Bitcoin taxes
In almost every country in the world - you’ll need to include any capital gains from Bitcoin, as well as any Bitcoin income, in your annual tax return. The information you need to report will vary a little depending on your specific tax office, but here’s a general overview on what you need to do to prepare your BTC taxes:
- Get your complete Bitcoin transaction history.
- Calculate your BTC taxes - either yourself or with a crypto tax calculator.
- File your BTC and crypto taxes as part of your annual tax return with your tax office.
- Relax - you’re done for another year!
Let’s start with how to get your Bitcoin transaction history.
How to download & export Bitcoin trading & transaction history
There’s a couple of ways to get your Bitcoin transaction history - depending on whether you’re doing it yourself or using a Bitcoin tax calculator. Let’s take a look.
- Use the Bitcoin API with crypto tax software. Connect all the wallets and exchanges you use to invest in Bitcoin with a crypto tax app using API, or by inputting your BTC xpub address. Your crypto tax app will then identify your cost basis, taxable transactions, capital gains and losses, as well as any crypto income. Simple!
- Export your Bitcoin transaction history in a CSV file. Many of the BTC wallets and crypto exchanges you use will let you download a CSV file of your BTC transaction history. If they don’t, you can use a BTC blockchain explorer to find and export your BTC transaction history to a CSV file. You can then calculate your Bitcoin taxes yourself, or upload your CSV file(s) to a Bitcoin tax calculator to do it for you.
Do Bitcoin wallets provide a tax report?
No - the majority of BTC wallets (and other crypto wallets) don’t provide a tax report. But if you’re trading BTC on centralized crypto exchanges, many of these exchanges do issue crypto 1099 forms.
Will I get a 1099 form about my Bitcoin transactions?
Living in the US and using centralized crypto exchanges? You may get a 1099 form about your BTC and crypto transactions.
If you’ve earned more than $600 in a single financial year on a centralized exchange that has KYC verification - it’s very likely you’ll be issued a 1099-MISC form. You’ll usually receive this by February of the following tax year at the latest.
Do Bitcoin wallets issue a financial statement?
Generally speaking - no. Your BTC wallet won’t issue a financial statement with your BTC transactions. However, you can use your Bitcoin transaction history to create a financial statement that you can use to calculate your crypto taxes.
Here’s how to get your Bitcoin transaction history through CSV or API.
Bitcoin CSV Export
Many crypto wallets and exchanges let you download a CSV file of your Bitcoin transaction history directly from their platform.
It’s important that your CSV file(s) cover your entire Bitcoin trading history so you can calculate your cost basis, income and short and long-term capital gains correctly. So you’ll need a CSV file from each wallet or exchange you use to trade Bitcoin, and that CSV file will need to cover your entire trading history on that platform.
Using a BTC wallet that doesn’t let you download a CSV file? No worries - you can use a blockchain explorer to get your BTC transaction history CSV file instead. There’s plenty of BTC blockchain explorers to pick from - just enter your BTC address and you should be able to download a CSV file of your transaction history.
Depending on how active a Bitcoin investor you are and how many BTC wallets and crypto exchanges you’re using - you may end up with a lot of CSV files.
That’s why you might prefer the second option - use the BTC API.
Bitcoin tax API
Bitcoin crypto tax calculators can help you skip the spreadsheets and fetch your BTC transaction history in minutes by utilizing an API.
All you have to do is connect each crypto exchange and wallet you use to trade Bitcoin with your crypto tax app. For crypto exchanges, this is as simple as generating a new API in their app and then inputting your API key and secret into your chosen crypto tax calculator. For BTC wallets, you’ll usually need to get your xpub key for your Bitcoin and input that into your crypto tax app instead.
Need step-by-step instructions? No worries, we’ve got instructions on how to connect the most popular wallets and exchanges with Koinly on our integration pages.
Do BTC wallets supply an end of year statement?
No - most Bitcoin wallets won’t supply you with an end of year statement, nor will the majority of crypto exchanges. If you need an end of year statement, create one yourself using CSV files or use a crypto tax calculator.
Can the IRS track Bitcoin?
Yes. The IRS can track Bitcoin and other cryptocurrencies.
If you’re trading Bitcoin on centralized crypto exchanges, the majority of these exchanges issue 1099-MISC forms to the IRS for any users earning more than $600 in income in a single financial year. Larger exchanges may also be compelled to share further KYC data with the IRS to ensure tax compliance.
When it comes to non-custodial wallets, it’s a little blurrier. Most of these wallets don’t require KYC verification, so you might think there’s no way the IRS can know about your investments. This is true - but if you’re transferring your BTC between non-custodial wallets and exchanges, these exchanges will have details on your wallets that they could share with the IRS.
As well as this, many wallets ask you to link a bank account to your wallet. Banks may share information with the IRS about your transactions to ensure tax compliance.
The best way to remain tax compliant is to calculate and report your Bitcoin taxes correctly.
Can other tax authorities track Bitcoin?
Yes. Other tax offices like the ATO, the CRA and HMRC are all cracking down on Bitcoin tax evasion. The majority of large exchanges are now compelled to share KYC data with tax offices around the world to ensure crypto tax compliance.
How to generate a Bitcoin tax report
The precise information you’ll need to generate for your Bitcoin tax report will vary a little depending on where you live and your regional tax office. This said, we can look at a general overview on how to generate a Bitcoin tax report yourself, as well as with a Bitcoin Tax calculator.
Doing your Bitcoin taxes yourself? Brave move. You’ll need to start by compiling your complete Bitcoin transaction history and identifying your cost basis for each asset. Now you figure out which transactions are taxed and which are not - as well as which kind of tax applies. Next, calculate any subsequent capital gains or losses from selling, trading or spending your BTC, as well as the fair market value of any BTC on the day you received them in your country’s currency. Now take all this information and report it to your tax office in your annual tax return.
How much information you’ll need to include really varies depending on where you live. Some tax offices only want to know about your net capital gains and losses and any additional income from crypto. But others - like the IRS - want you to report each individual sale, trade or spend of BTC and other crypto.
This can create a lot of work - so save yourself hours of tax headaches with a BTC tax calculator like Koinly.
Just connect the crypto wallets and exchanges you use using API or by importing a CSV file of your transaction history. Your crypto tax app will then identify your cost basis, the fair market value of your crypto on the day you disposed/received it, taxable transactions and calculate your capital gains and losses. You just need to download the tax report you need for your tax office come the tax deadline and hand it over to your accountant or use it to file your annual tax return yourself.
If you’ve been wondering is Koinly an Bitcoin tax calculator tool, the answer is, yes! Not only can Koinly import Bitcoin transaction history, but Koinly can also calculate your BTC taxes in a format that makes sense for your country’s tax office. As a BTC tax calculator, Koinly is able to do a bunch of impressive tasks that save you time and can even save you from paying too much taxes.
As a quick breakdown, here’s a short summary of what Koinly does:
- Imports all your trades including purchases, sales, swaps, and rewards.
- Converts your transactions into your country’s currency at fair market value (this in itself is a massive time saver).
- Deciphers which of your BTC trades are taxable and which are not.
- Helps you submit a clean and accurate report to your tax office.
Best of all, Koinly is totally free to use to calculate your BTC taxes. You’ll only need a paid plan when you want to download your crypto tax report.
Sign up free and try our Bitcoin tax calculator today.