Understand crypto taxes at a glance
Struggling to understand what the tax implications of trading crypto might be?
In this quick guide created by the crypto tax experts at Ledgible, we go over the basics you need to know about crypto taxes globally. No need to read through thousands of words about crypto tax, we have all your questions answered here as simply as possible.
How is cryptocurrency taxed?
In the US, crypto is taxed as property, meaning that normal capital gains taxes apply to the currency. In other countries the situation varies greatly. The following countries are considered 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 equally friendly to crypto taxes. Belgium taxes crypto gains at a flat 33%, the Philippines at 35%, and Iceland at up to 46%! All of this means that if you want to follow the local tax codes when trading, you’ll want to look up your respective country’s crypto tax guidelines, which most established economies have published.
How do the tax authorities treat/classify crypto in the US?
As property. In Notice 2014-21, the IRS classifies crypto as property, which means that we taxpayers must pay standard capital gains on the transactions. This tax law actually benefits long-term HODLers, as long-term capital gains are significantly lower than short-term capital gains.
You pay taxes on crypto on the same tax deadline as regular taxes, usually on forms like 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 see errors, it’s probably a crypto-taxable event. Although that statement is said in jest, it is mostly true. Essentially, any time crypto is exchanged, converted, sold or traded, it is likely to be a taxable event.
This is why there are automated and secure crypto tax calculators to collect all this data automatically and ensure that you don’t end up using a giant spreadsheet to calculate it yourself during tax season.
How can I determine gains and losses for my crypto?
Since crypto taxes vary by country and type of trade, if you made more than a few trades last year – and that includes exchanging, selling or transferring crypto – then your best bet is to use an automated crypto tax tool.
If you’re working with a CPA or tax professional, Lesbar is the solution of choice, giving tax professionals access to trades through a secure, read-only portal that allows them to further minimize their tax burden.
However, Lesbar also works for DIY crypto tax reviewers looking for a powerful and affordable tool for themselves. Since Ledgible is used by some of the largest financial institutions in the world, consumers using the tool get access to the leading secure crypto tax and accounting tool, all at an industry leading price.
What is HIFO/FIFO/LIFO?
These terms are all ways of calculating crypto taxes. Here’s what they mean:
HIFO: Highest in, first out
LIFO: Last in, first out
FIFO: First in first out
These essentially relate to how you match crypto transactions to calculate gains and losses. Most crypto tax software lets you switch between all three to find which one can minimize your taxes the most, but in general, if the discrepancy between each type is large, 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 need to compile your crypto trades on Form 8949, which Ledgible can handle for you. You may also receive a 1099-B or 1099-DA, these are simply forms that aggregate all your crypto trades for each platform. You should work with your crypto tax software or crypto accountant to ensure these are filed correctly.
Are there ways to save on crypto taxes?
Yes! By properly planning your cryptocurrencies to avoid long and short term capital gains, as well as using tax loss strategies, there are ways to not only save on crypto taxes, but even use crypto to save on your regular taxes as well.
What happens if I don’t pay crypto tax?
With the IRS ramping up enforcement in the US, and other countries cracking down on crypto taxpayers, you risk being audited if you don’t pay your crypto taxes…or worse. While not paying crypto tax was fairly standard in the early days of the industry, today’s regulation is asking taxpayers globally to start paying.
What is the best crypto tax software?
Lesbar was recently ranked as the best crypto tax software by many leading technology and software brands. With industry-leading security, built-in tax loss capture, automated transaction tracking, and integrations with all tax and accounting software, there’s probably no better choice than Ledgible for do-it-yourself filers and tax professionals alike.
Disclaimer
All information on our website is published in good faith and for general information purposes only. Any action the reader takes on the information contained on our website is strictly at their own risk.
