When you buy through affiliate links in our content, we may earn a commission at no extra cost to you. Learn 
What are Crypto Taxes?
Crypto taxes are the taxes that businesses or individuals must pay on transactions involving cryptocurrencies.
Cryptocurrencies are subject to taxation in several countries in the world. They are usually taxed either as income or as capital gains. It’s important for people who engage in crypto transactions to understand their local tax regulations and maintain accurate records to adhere to tax laws.
Techopedia Explains the Crypto Taxes Meaning
Crypto is treated like stocks, bonds and other capital assets in the US. Which means that US taxpayers will owe taxes on money gained from crypto either as capital gains or as income.
In the US, the IRS requires all taxpayers to maintain records of their crypto transactions. Taxpayers must calculate their capital gain or loss on the sale or exchange of cryptocurrencies.
How Crypto Taxes Work
Taxpayers in the US are required to report crypto sales, trades, payments and income to tax authorities. Each of the mentioned transactions have different tax implications.
Your crypto will attract capital gains taxes or income taxes.
Capital gains taxes are taxes imposed on the profit from the sale of cryptocurrencies. Capital gains tax rates may vary depending on your country of domicile, holding period, taxpayer’s income level and more.
Income taxes are taxes imposed on the income of individuals and businesses. Taxpayers are required to file an income tax return every year to disclose their tax obligations.
Types of Cryptocurrency Tax Events
To understand the definition of crypto taxes, it is necessary to know the difference between taxable and non-taxable events. You will also find information on crypto taxation on payments, staking, and mining.
Taxable events as income:
Non-taxable events:
Taxes on Crypto Payments, Staking and Mining
Taxes on crypto payments depend on the nature of the transaction. Crypto income payments for goods and services are taxable, while transfer of crypto as a gift and transfer of crypto to your own wallets and accounts are not taxable.
Staking and mining cryptocurrencies attract income taxes. Each time a miner or an investor receives crypto in the form of mining or staking reward, they will have a taxable income to report.
Crypto Tax Reporting
In order to report your crypto taxes accurately, you will need to record each crypto transaction and log the amount of tokens, purchase/selling price and time to determine tax obligation at the end of the reporting year.
Your crypto tax reporting becomes easier when you buy and sell your cryptocurrencies on centralized crypto exchanges (CEX).
In the US, tax authorities require crypto exchanges and brokers to issue tax forms and provide customers with a copy.
1099-MISC form reports income earned from staking and rewards to the IRS as “miscellaneous income.”
Meanwhile, exchanges will issue you the 1099-B form if you sold cryptocurrencies and traded crypto futures contracts.
When exchanges and brokers may report taxable income to the tax authorities, you will have to ensure that all of your capital gains and losses are accounted for when you file your taxes. Keeping a crypto gains/loss report and transaction history report is required for accurate crypto tax reporting.
How To Minimize Crypto Taxes
Here are ways to minimize crypto taxes:
Holding crypto does not incur taxes. Having a long-term investing viewpoint on crypto investing will result in lower crypto taxes as tax is only imposed on realized gains from a crypto sale.
Capital gains tax rates can differ depending on the length of time an investor holds their asset. Long term capital gains attract lower tax rates compared to short term capital gains. Typically, long term capital gains tax is applied on profits from sale of an asset held for over a year.
Investors realize a capital loss when they sell crypto at loss. Depending on your country of domicile, you may be allowed to use your losses to offset other capital gains and reduce your total tax liability.
Examples of Cryptocurrency Tax Events
Here are examples of historical crypto tax events as mentioned by the IRS.
When Bitcoin (BTC) forked to form the Bitcoin Cash (BCH) chain in August 2017, BTC holders received an equal amount of BCH tokens as a result of the chain split. According to the IRS, the BCH tokens received were taxable as income because “the taxpayer had an accession to wealth.”
When the investor received their BCH tokens, the date of receipt and fair value of the tokens were to be recorded.
The Bottom Line
Cryptocurrency taxation is still a gray area in many nations. Even if your country has not implemented cryptocurrency taxes, it is advised to record details of your crypto purchases, sales, payments and transfer for future reference.
FAQs
What are crypto taxes in simple terms?
Do you have to pay taxes on crypto?
How much tax do you have to pay with crypto?
Do I need to report crypto on taxes if it is less than $600?
How to avoid taxes with crypto?
References
- Digital Assets | Internal Revenue Service (Irs)
- Tax forms, explained: A guide to U.S. tax forms and crypto reports | Coinbase (Coinbase)
- About Form 1099-MISC, Miscellaneous Information | Internal Revenue Service (Irs)
- About Form 1099-B, Proceeds from Broker and Barter Exchange Transactions (Irs)
- Office of Chief Counsel Internal Revenue Service (Irs)
- Understanding your Form 1099-K | Internal Revenue Service (Irs)
