Are you struggling to understand what the tax implications of trading crypto might be?
In this quick guide produced by the crypto tax experts at Ledgible, we’ll walk through the basic things you’ll need to know about crypto taxes globally. There’s no need to read through thousands of words about crypto tax, we’ve got all of your questions answered here as simply as possible.
How is cryptocurrency taxed?
In the US, crypto is taxed as property, meaning that regular capital gains taxes apply to the currency. In other countries, the situation varies greatly. The following countries are seen as crypto tax havens, meaning they have no taxes on cryptocurrency:
- Singapore
- Malaysia
- Portugal
- Malta
- El Salvador
- Cayman Islands
- Germany
- Switzerland
- Puerto Rico
But not all countries are as friendly to crypto taxes. Belgium taxes crypto gains at a flat 33%, the Philipines at 35%, and Iceland at up to 46%! All this means that if you want to abide by the local tax codes when trading, you’ll want to look up your respective countries’ crypto tax guidelines, which most established economies have published.
How does the IRS treat/classify crypto in the US?
As Property. In Notice 2014-21, the IRS classifies crypto as property, meaning that we taxpayers must pay standard capital gains on the transactions. This tax law actually benefits long-term HODLers, as long-term capital gains rates are significantly lower than short-term capital gains rates.
You’ll pay taxes on crypto on the same tax deadline as regular taxes, generally on forms such as the 8949, through the filing of a 1099-B or 1099-DA, all categorized on your 1040 return.
Which transactions are taxable?
In crypto, if you look at it wrong, it’s probably a crypto-taxable event. While that statement is said in slight jest, it’s largely true. Essentially every time crypto is exchanged, converted, sold, or traded, it’s likely a taxable event.
This is why automated and secure crypto tax calculators exist, to collect all of this data automatically and ensure you don’t end up using a giant spreadsheet to calculate it yourself come tax season.
How can I determine gains and losses for my crypto?
Since crypto taxes vary by country and by type of trade, if you made more than a few trades last year – and that includes any exchange, sale, or transfer of crypto – then your best bet is to use an automated crypto tax tool.
If you work with a CPA or tax professional, Legible is the preferred solution, allowing tax professionals to access trades through a secure read-only portal allowing them to further minimize your tax burden.
However, Legible also works for DIY crypto tax filers looking for a powerful and affordable tool for themselves. Since Ledgible is used by some of the largest financial institutions in the world, consumers that use the tool gain access to the leading secure crypto tax and accounting tool, all at an industry-leading price.
What’s HIFO/FIFO/LIFO?
These terms are all ways to calculate crypto taxes. Here’s what they mean:
HIFO: Highest in, first out
LIFO: Last in, first out
FIFO: First in, first out
These essentially apply to how you match up crypto transactions to calculate gains and losses. Most crypto tax software allows you to toggle between all three to figure out which might minimize your taxes the most, but in general, if the discrepancy between each type is high, you’ll want to work with a tax professional to make sure things are filed correctly.
What tax forms do I need for crypto taxes?
Generally speaking, you’re going to need to compile your crypto trades on Form 8949, which Ledgible can handle for you. You also may receive a 1099-B or 1099-DA, these are simply forms that compile all of your crypto trades for each platform. You’ll want to work with your crypto tax software or crypto accountant to make sure these are filed properly.
Are there ways to save on crypto taxes?
Yes! By properly planning out your crypto tades to work around long and short-term capital gains rates, as well as employing tax loss harvesting strategies, there are ways to not only save on crypto taxes but even utilize crypto to save on your regular taxes too.
What happens if I don’t pay crypto taxes?
With the IRS ramping up enforcement in the US, and other countries cracking down on crypto taxpayers, if you don’t pay crypto taxes, you’re risking getting audited… or worse. While not paying crypto taxes was fairly standard back at the beginning of the industry, current regulation globally implores taxpayers to start paying up.
What’s the best crypto tax software?
Legible was recently ranked the best crypto tax software by many leading technology and software brands. With industry-leading security, built-in tax loss harvesting, automated transaction tracing, and integrations with all tax and accounting software, there’s likely a no better choice than Ledgible for DIY filers and tax professionals alike.
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