The complete guide to crypto taxes 2019

Another year and once again doing your taxes becomes a necessity.
Depending on where you live in the world, you might need to pay taxes on your crypto trades, i.e. when you trade one crypto for another or use your crypto to buy something.
We are not financial or legal advisors, so please make sure you seek professional advice from a tax/financial/legal advisor if necessary.

The complete guide to cryptocurrency taxes

What is great about cryptocurrencies is that they are borderless, they are not controlled by a single entity or government. And they can be used for a great number of instances. But there are complications to this rather non-unified way how crypto (amongst other things) are taxed in different parts of the world. There have been talks on a both a EU level and at the G20 summits, to unify the classification and taxing of cryptocurrencies globally, but that’s either a pipe dream (or nightmare?), or years away from being a reality.

With that said we’ve looked into the tax situation when it comes to cryptocurrencies, reviewed some helpful tools that might help you, and compiled other perhaps useful tips and articles.

Common scenarios when you might need to pay taxes on crypto

  1. You bought 1 cryptocurrency and traded it for another. In many countries this is considered a taxable event, for any capital gains or loss made on that trade.
  2. You bought something with your cryptocurrency, for example you paid for your morning coffee with some Bitcoin, or a car, or a pizza, etc.
  3. You have mined cryptocurrencies, this might be taxed as a hobby or professionally.
  4. You’ve received cryptocurrencies part of an airdrop
  5. You’ve received cryptocurrencies while staking
  6. You’ve received cryptocurrencies part of a hard fork

Exploring each tax scenario briefly

Scenario 1: You bought 1 cryptocurrency and traded it for another

This will in most cases be considered a taxable event. If your country has taxes in place that affects cryptocurrencies, then most likely it will be mean that this scenario will be taxed. In many of those scenarios it will be taxed as a capital gains event. So any gains made from that cryptocurrency you originally bought and later traded for another needs to be calculated. But any loss made could and should be considered as it can used to offset other gains and income.

Wikipedia article on Capital gains tax

Scenario 2: You bought something with your cryptocurrency

Another taxable event, and as with scenario 1 any gains/losses made on that cryptocurrency you used to buy something needs to be taxed. That covers basically anything you buy it with. So it doesn’t matter if it’s for a pizza, coffee or a car.

Image result for tax crypto tools

Scenario 3: You have mined cryptocurrencies, this might be taxed as a hobby or professionally

Depending on the volume and amount mined it can be considered income part of a business. IRS for example considers mining a form of self-employment if the value gained from mining is more than $400 per calendar year. Check in your country how mining is taxed.

Coindesk article on mining, Coincentral article on mining

Scenario 4: You’ve received cryptocurrencies part of an airdrop

An airdrop is a distribution of a cryptocurrency token or coin, sent out to a large number of wallet addresses, usually for free or as a reward for doing some smaller task. And how these are exactly taxes is not clear, not even to the IRS for example. Where both senior legal experts and IRS themselves can’t say for sure how they should be taxed. But they should be reported as a taxable event.

CNBC article on airdrops

Scenario 5: You’ve received cryptocurrencies while staking

In the U.S this should be considered the same as for mining. I.e. over a certain income made and it should be regarded a business activity.

Scenario 6: You’ve received cryptocurrencies part of a hard fork

A hard fork is where a cryptocurrency splits into two after a major upgrade to the blockchain. Resulting in an old and new cryptocurrency. In the U.S the IRS have not here decided nor publicly informed the cryptocurrency community how it should exactly be taxed. But what you can be sure of is that if you live in the U.S it should be reported to IRS at least.

CPA Journal article on hard forks and taxes

Helpful cryptocurrency tax tools for your yearly reports

If you have done a lot of trades then it will be quite quickly difficult for your to calculate the correct taxes for all those trades. I know this personally as I found myself in this situation before, and I then used on of the below tools to help me file my taxes.

So we have below listed some tools that might help you creating those reports automatically after you’ve uploaded your trades. ***You can most likely use these services wherever you live in the world. If you need to pay taxes on your capital gains then these tools can help you!

Cointracking is an online service that collects all your crypto trades via exchanges and helps you file tax returns based on your trades. CoinTracking analyses your trades and generates real-time reports on profit and loss, coin values, and realised and unrealised gains, tax reports and more. Simplifying your tax reports and your life. Check out their website for more information www.cointracking.info

Cointracker is another service that can help you compile your trades, and automatically create your tax reports. It has 4 different pricing models, depending on how many trades you’ve made. It can automatically import your trades if you connect the exchanges you’ve used, or you can manually import trades, it also offers you the possibility to import trades from your wallets. Check out their website for more information www.cointracker.io

Image result for cointracker

Cryptotrader is another option promising to help you to do your crypto taxes in minutes. And save you all that headache and confusion. In three simple steps you can be tax ready: First you import your trades – secondly you add any crypto income and then you have your report ready to be downloaded. Check out their website for more information www.cryptotrader.tax

Bitcoin.tax is a similar service like Cointracking and Cointracker that helps to compile your trades and create reports (applicable for some countries) for your yearly tax reports. The site itself looks basic but it gets the job done. I can vouch for that. For me and many other services like this are super handy and worth the low cost for its service. BitcoinTaxes have integrated and teamed up with online tax preparations services to help import your crypto activity into your tax forms. Check out their website for more information www.bitcoin.tax

Tips

Harvest losses

For many crypto investors 2018 was a tough year, so you might have had bigger capital losses than gains. Which means that you can make use of this and realising the loss of a previously gained transaction/crypto to lower your tax burden.

To exemplify this: You bought 1 Bitcoin for 1000$ in January 2017 and then you traded the 1 BTC for 20 ETH in November 2017 when the price of 1 BTC was 20,000$. That means you realised a capital gains event when your investment of 1000$ (for 1 BTC) was worth 20,000$ (for 1 BTC). And you would have to pay tax on the gains of 19,000$ in many countries. But if the market crashed in 2018 and those 20 ETH that you bought for 20,000$ is now only worth 2000$ and you then traded those for lets say 1 Bitcoin again, then you have realised a capital loss of 18,000$.

This might not help you when doing your taxed for 2017, but worth considering for your 2018 taxes. In some (most?) countries you can only offset capital losses against capital gains, so if you had a poor capital gains year in 2018 then it might be a good idea to check if you can carry forward your losses for the following year – 2019.

Image result for capital gains and losses

Bank some of your profit

By putting some profits aside whenever you’ve made a trade that resulted in profits you can save yourself some future headache when the tax day come. After reading this guide you should be familiar to the fact that you might need to pay taxes on crypto trades. So by applying this approach you can make sure that you don’t have to dig too deep to pay your taxes.

Long term vs short term capital gains

In some countries like crypto is taxed differently depending on the time you held one crypto before trading/selling it. Both the U.S and Germany for example apply this approach.
Obviously this could be useful for you to be aware of and decide how and when you might want to sell your cryptocurrencies.

Germany

In Germany crypto is considered private money and if you have held a cryptocurrency for more than 1 year then you won’t have to pay any capital gains tax. Otherwise income tax applies and are progressive reaching up to 45%. 
Example: Bought 1 Bitcoin for 1000$ in 1st of January 2017 and sold it for for 20,000$ in February 15th 2018 then no capital gains tax.

U.S

In the U.S they differ the taxation of cryptocurrencies (like with some other investments like stocks for example) depending on how long you’ve held your cryptocurrency before trading/selling it.
For short term (less than 1 year) cryptocurrency trades are taxed as ordinary income. For long term (more than 1 year) cryptocurrency trades these are taxed differently and about half the rate of short term taxation (depending on your tax situation).

Seek professional tax advice when necessary

Don’t be afraid to contact experts in the field when you are concerned or unsure about your tax situation. Sure you can always find helpful advice on Reddit, tax forums and via your social circles. But sometime you might need professional advice from someone qualified. It could save you a lot of money, time and headache.

Get help from Crypto Tax Girl or others who have legal backgrounds to help you navigate the crypto tax space further.

How cryptocurrencies are taxed in other countries

Belarus has taken an interesting approach to cryptocurrencies in a broader sense. Where the Belarusian president Alexander Lukashenko have signed a decree making cryptocurrencies, initial coin offerings, and smart contracts legal. And cryptocurrency will be tax exempt until 2023. This is a strategy taken to boast the development of their digital economy, and strengthen the view of Belarus as a digital/tech market.

France recently took a more positive approach to the taxation of cryptocurrencies when they re-defined digital currencies as movable property. That lowered the tax rate to 19%.

Netherlands consider cryptocurrencies as a type of asset, and there’s a 25,000 euros threshold for all gains on assets that is tax free (this would include other investment, stocks, etc). Anything over that is taxed, depending on the amount of your capital you pay between 0.86 and 1.61 percent of tax.

Useful links on cryptocurrency taxes

UK – Tax on cryptoassets

Guidelines on taxation of cryptocurrencies or cryptoassets are outlined in this policy paper created in December 2018

Mining Bitcoins and other cryptocurrencies are often taxed differently than personal trading. It could either be taxed as a hobby or as a professional activity, depending on the volume for example, and your country’s tax structures. Make sure to check with your national tax agency.
Coincentral guide

Deklira – Swedish online tax service for cryptocurrency trades
This service is for the Swedish market, and they can take your trading files and create tax reports/files that you can upload to the Swedish tax agency directly online.

K4 Krypto – From CSV to tax ready reports
Another service like the one from Deklira. K4 Krypto takes your trades in a CSV file and automatically creates reports in the correct format for the Swedish tax agency for your online tax declaration.

***NOTE: That there might be instances where your national tax agency sees your trades as professional trades/trading and then looking to tax you accordingly. Seek professional advice if you think this might be apply to you.

We hope that you found this guide on cryptocurrency taxes helpful. Please share it if you did. If you have questions or comment please feel free to leave them here below and we will try and answer them as soon as possible. In the meantime good luck and be safe.

Other popular guides:

  1. Best ways of earning passive income from crypto in 2019
  2. The best tools for your crypto taxes
  3. Best ways of converting Bitcoin to cash
  4. How to be safe with crypto

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