Crypto Tax Guide

This guide addresses the confusion around taxes in different jurisdictions, explaining how cryptocurrencies are categorized and taxed. It also highlights taxable and non-taxable crypto events, and the tax rules that vary by country.

Tradeblock does not provide legal or tax advice to readers. Please consult a tax professional in your jurisdiction and only use this guide for educational purposes.

Despite Bitcoin’s original purpose of facilitating peer-to-peer payments through a decentralized system without involving a financial institution, most authorities treat cryptocurrency as property or a capital asset. As a result, gains and losses from virtual currency transactions are now taxable in many countries and must be reported accurately.

While digital assets are subject to capital gains tax in several jurisdictions, some countries have yet to establish formal regulatory frameworks or tax rules for cryptocurrencies. For instance, the United Arab Emirates implements a zero capital gains policy on crypto investments and profits. With an evolving regulatory framework, Portugal has gradually shifted from a crypto tax-free country, introducing capital gains taxes on crypto assets.

When their activities are classified as taxable events, taxpayers owe taxes on virtual currency. Therefore, it’s crucial that users fully understand the difference between a taxable and a non-taxable event.

What Commonly Triggers a Tax Liability

Events that are considered taxable typically entail disposing of crypto or earning an income. Common examples include selling digital asset funds for fiat money, direct crypto-to-crypto trading, and spending crypto on goods or services. Investors also owe income tax generated by crypto exchange-traded products, just like from airdrops, staking, and mining. Other taxable crypto events include earning crypto as a salary, self-employment income, or investment income from a business.

What is Often Not Taxable

In most jurisdictions, crypto users do not owe capital gains tax for holding virtual currencies or for transferring crypto between wallets owned by the same person. Moreover, taxes are not paid if crypto is received as a gift, for instance, though the rules vary by jurisdiction. We advise contacting a local tax advisor or professional for more information, as definitions can differ by country.

It is possible to calculate the amount of tax owed once users know what authorities consider the most important elements. The crucial factors outlined below will help crypto users and investors determine how much tax they are expected to pay based on crypto gains and losses.

• Cost Basis: The basis, or cost basis, refers to the amount a person pays to acquire certain digital asset funds. This includes any transaction fees, commissions, and other costs incurred during the acquisition process.
• Realized Gain or Loss: Whenever selling, trading, spending, or disposing of crypto in other ways, you either realize a gain or a loss. From here, you can calculate your capital gains or losses by subtracting the cost basis from the sale price.
• Short-Term vs. Long-Term Gains: Most countries have the same broad tax category, meaning friendly tax rates for long-term capital gains and higher taxes for short-term capital gains. A long-term capital gain or loss occurs when holding virtual currency for more than 12 months before selling or exchanging it.
• Accounting Methods: Cost basis methods vary from one jurisdiction to another, and the selected option can affect your taxable income. The most common options include First In, First Out (FIFO), Highest In, First Out (HIFO), Last-In, First-Out (LIFO), average cost, and specific identification.

The tax consequences a crypto investor can face typically vary depending on the type of crypto asset. Noteworthy factors with different tax implications include classification by authorities and how an individual uses such digital asset funds after acquisition.

Coins and Tokens (BTC, ETH, Altcoins)

Most jurisdictions apply standard capital gains taxes on taxable events involving Bitcoin (BTC) and altcoins like Ethereum (ETH), Dogecoin (DOGE), Bitcoin Cash (BCH), and Litecoin (LTC). Disposal events trigger gains or losses that help to calculate taxes when using BTC or altcoins, and both asset categories generally receive the same crypto tax treatment. Learn more about alternative digital currencies in our comprehensive altcoins guide.

DeFi, Staking, and Yield

Tax laws in many countries treat earnings from DeFi (Decentralized Finance) protocols, staking, and liquidity as taxable income. The rules are constantly changing in many parts of the world, so individuals should check the applicable local tax laws. See our guide on how to stake crypto to learn everything on this subject.

NFTs

Capital gains taxes generally apply when disposing of non-fungible tokens (NFTs). However, some countries may impose higher collectibles tax rates. Note that NFT royalties or proceeds generated from selling NFTs are taxed as ordinary income. Learn more about what NFTs are in our comprehensive guide.

From federal tax law in the United States to country-specific laws in Europe, crypto tax regulations heavily vary by country and region. As crypto keeps evolving, applicable laws also follow. For this reason, players must always check and comply with the current rules enforced by tax authorities.

United States

For federal income tax purposes in the U.S, cryptocurrencies are classified as property and subject to short-term and long-term capital gains tax at fair market value. Short-term capital gains are taxed at ordinary income tax rates, and crypto exchanges report income on Form 1099-DA. Our in-depth US crypto tax guide provides more information.

United Kingdom

HMRC rules in the United Kingdom classify crypto as a capital asset that is subject to capital gains tax on disposal. The tax authority applies income tax on crypto earned through mining, airdrops, and staking rewards, but taxpayers can see their cryptocurrency taxes reduced through an annual capital gains tax allowance. Find out more detailed information in our UK crypto tax guide.

European Union

There is no unified crypto tax framework for countries in the European Union, as each state has its own rules. For example, laws in Germany exempt individuals who hold cryptocurrency for more than 12 months from capital gains taxes. Other countries, such as Italy, Spain, and France, implement their own capital gains tax rules, and the new crypto reporting directive (DAC8) seeks to introduce unified guidelines and exchange reporting in the EU. Explore the different crypto regulations by country in our guide.

Canada

The Canada Revenue Agency (CRA) categorises cryptocurrency as a commodity. For users, this means that disposals can trigger capital gains or income tax, which includes 50% of the net gain. Individuals who mine or trade frequently may also pay business income tax.

Australia

For tax purposes in Australia, the Australian Taxation Office (ATO) classifies cryptocurrency as property. If a taxpayer holds digital assets for more than a year, they receive a 50% discount. Moreover, personal use assets can be exempted from taxes for smaller transactions.

Crypto-Friendly Jurisdictions

Some jurisdictions, including the United Arab Emirates and El Salvador, have not implemented capital gains tax on crypto assets or have fewer restrictions on tax reporting. They appeal to investors who seek to relocate, but they also have their own regulatory and residency requirements. Therefore, we advise users to do proper research beforehand to fulfill their financial interests and crypto investment objectives.

Tax frameworks allow crypto users to use legitimate ways of minimizing their taxes. These include:

• Long-Term Holding: Most jurisdictions offer reduced tax rates for users holding digital assets for more than a year. Taxpayers in some countries may also be exempted from crypto taxes under special circumstances outlined in tax laws.
• Tax-Loss Harvesting: This is a strategy through which a crypto investor realizes capital losses to potentially offset capital gains in the same tax year. While the wash sale rule generally applies to stocks, it does not apply to crypto assets in many jurisdictions. However, this flexibility is changing in certain countries.
• Tracking Cost Basis Accurately: In countries where tax authorities allow different methods of tracking cost basis, using the most appropriate method can reduce an investor’s tax liability. Keeping records of all cryptocurrency transactions will make it easier to track your cost basis.
• Using Tax Software: Tax software like Koinly and CoinTracker eliminates the need to track transactions across digital asset exchanges and wallets manually. Crypto tax tracking tools automate the process and ultimately save time.
• Gifting and Charitable Donations: Many countries do not tax charity donations or crypto gifts that do not exceed specified thresholds. Therefore, charities and donations present opportunities to transfer cryptocurrency with zero or relatively low taxes.

We advise users to plan their taxes responsibly and comply with tax regulations in their respective countries. Additionally, consult a financial advisor or tax professional for more information if you need help.

While the tax reporting process varies by jurisdiction, there are some common steps. Use our general guide below to pay taxes when disposing of crypto.

1. Collect all crypto transactions completed within a particular tax year from your wallets and cryptocurrency exchanges.
2. Identify disposal events and calculate capital gains and losses.
3. Classify taxable crypto events, such as staking rewards, mining, or receiving salaries in digital currencies.
4. Apply the tax rates, exemptions, or short and long-term treatment as per the crypto tax rules implemented by the tax authority in your jurisdiction.
5. Report your cryptocurrency taxes on the personal income tax return form or schedule, depending on the tax authority’s guidelines.

To comply with tax laws, centralized exchanges in some jurisdictions provide crypto users with tax reports or report directly to tax authorities. In the United States, for example, federal income tax law requires brokers to report cryptocurrency transactions on Form 1099-DA. DAC8 also has similar tax implications, as it aims to enforce exchange reporting in the European Union. However, manual tracking applies to DeFi and self-custody crypto wallets.

Learn more about how to trade digital asset products in our detailed crypto trading tax guide.

While there are no universal crypto tax rules, many countries have enacted their own laws that investors must understand for tax filing purposes. As most authorities apply capital gains tax when users dispose of cryptocurrency, the most common taxable events in various jurisdictions range from selling crypto for fiat currency to buying goods with net asset values, and earning from mining or salaries.

With an ever-growing regulatory landscape, staying informed about the process of reporting cryptocurrency taxes is crucial and facilitates investors’ understanding of their obligations, rights, and how to calculate crypto gains. We recommend reading our complete crypto guides for more information.