Lost when it comes to Bitcoin tax? No matter where you live in the world, your tax office will want to know about your BTC activity. Here’s everything you need to know about Bitcoin taxes.
Cryptocurrency’s rise and appeal as an alternative payment method
More and more people are interested in cryptocurrency these days. It is important to understand the tax implications of cryptocurrency whether you accept it, invest in it, or receive it as a gift.
Cryptocurrency is a type of digital asset that can be used to purchase goods and services. Many people invest in cryptocurrency in a similar way to how they would invest in stocks. People are attracted to cryptocurrency because it bypasses traditional banking channels. Cryptocurrency is a decentralized form of currency, meaning it is not regulated by any central government authority.
Cryptocurrency has built-in security features. Transactions are encrypted with specialized computer code and recorded on a blockchain. The blockchain is a public, distributed digital ledger in which every new entry is reviewed and approved by all network members.
You may have heard of Bitcoin or Ethereum as two of the more popular cryptocurrencies, but there are thousands of different forms of cryptocurrency worldwide.
Do you have to pay tax on Bitcoin?
Yes. You will need to pay taxes on your Bitcoin, as well as any other cryptocurrencies you may have. The amount of tax you pay will depend on the type of transaction you are making and your location. Our crypto country tax guides can teach you more about how Bitcoin and other cryptocurrencies are taxed in your country.
The type of tax you’ll pay on your Bitcoin depends on the type of transaction you make.
If you are selling BTC for fiat currency, trading BTC for another cryptocurrency, or spending BTC on goods and services, you will pay Capital Gains Tax on any profit you make from that transaction. In some countries, if you give someone Bitcoin as a gift, you may have to pay Capital Gains Tax on it.
If you earn Bitcoin through mining or interest, you will pay income tax based on the fair market value of Bitcoin at the time you receive it.
How is crypto taxed?
If you invest in crypto outside of a retirement account, you will incur capital gains or losses. The Internal Revenue Service (IRS) taxes cryptocurrency gains or losses as either short-term or long-term, depending on how long the cryptocurrency was held before being sold or exchanged.
- If you owned the cryptocurrency for one year or less before spending or selling it, any profits are typically short-term capital gains, which are taxed at your ordinary income rate.
- If you held the cryptocurrency for more than one year, any profits are typically long-term capital gains, subject to long-term capital gains tax rates .
Now that you know how Bitcoin is taxed, let’s look at how you can do your Bitcoin taxes.
How to prepare Bitcoin taxes
In most countries around the world, you will need to report any capital gains from Bitcoin as well as any income from Bitcoin in your annual tax return. The information you need to report will vary a little depending on your specific tax office, but here’s a general overview on what you need to do to prepare your BTC taxes:
- Get your complete Bitcoin transaction history.
- Calculate your BTC taxes – either yourself or with a crypto tax calculator.
- File your BTC and crypto taxes as part of your annual tax return with your tax office.
- Relax – you’re done for another year!
You can view your transaction history by clicking on the “History” tab. Here you will see all of your past Bitcoin transactions.
How to download & export Bitcoin trading & transaction history
There are two ways to get your Bitcoin transaction history – by doing it yourself or by using a Bitcoin tax calculator. Let’s take a look.
- Use the Bitcoin API with crypto tax software. Connect all the wallets and exchanges you use to invest in Bitcoin with a crypto tax app using API, or by inputting your BTC xpub address. Your crypto tax app will then identify your cost basis, taxable transactions, capital gains and losses, as well as any crypto income. Simple!
- Export your Bitcoin transaction history in a CSV file. Many of the BTC wallets and crypto exchanges you use will let you download a CSV file of your BTC transaction history. If they don’t, you can use a BTC blockchain explorer to find and export your BTC transaction history to a CSV file. You can then calculate your Bitcoin taxes yourself, or upload your CSV file(s) to a Bitcoin tax calculator to do it for you.
Do Bitcoin wallets provide a tax report?
Most BTC wallets do not provide a tax report. If you are trading BTC on a centralized crypto exchange, the exchange may issue a crypto 1099 form.
Bitcoin CSV Export
Many crypto wallets and exchanges enable you to download a CSV file of your Bitcoin transaction history directly from their platform.
Your CSV file(s) should cover your entire Bitcoin trading history so that you can accurately calculate your cost basis, income, and short- and long-term capital gains. For each wallet or exchange you use to trade Bitcoin, you will need a CSV file that contains your entire trading history on that platform.
If you are using a BTC wallet that doesn’t let you download a CSV file, you may not be able to get all the information you need about your transactions. This can make it difficult to keep track of your finances and make sure that you are getting all the payments you are owed. If you’re concerned about not being able to see your BTC transaction history, don’t worry – you can use a blockchain explorer to get a CSV file of your transaction history. There are many options for BTC blockchain explorers – just enter your BTC address and you should be able to get a CSV file of your transaction history.
If you are an active Bitcoin investor using multiple BTC wallets and exchanges, you may end up with a lot of CSV files.
You may prefer the second option – using the BTC API.
Bitcoin tax API
Bitcoin crypto tax calculators can help you save time by fetching your BTC transaction history in minutes through an API.
To trade Bitcoin using a crypto tax app, simply connect each crypto exchange and wallet you use. For crypto exchanges, generating a new API is simple. To input your API key and secret into your chosen crypto tax calculator, follow these steps: For Bitcoin wallets, you will typically need to obtain your xpub key and enter it into your crypto tax application.
How to generate a Bitcoin tax report
The exact type of information you will need to include in your Bitcoin tax report will differ depending on your location and the tax office in your region. We can look at a general overview of how to generate a Bitcoin tax report using a Bitcoin Tax calculator.
Doing your Bitcoin taxes yourself? Brave move. In order to calculate your taxes owing on Bitcoin profits, you must first gather your complete transaction history, and then determine the cost basis for each asset. Now you will need to determine which transactions are taxed and which are not, as well as what type of tax applies to each. Next, calculate any capital gains or losses from selling, trading, or spending your BTC, as well as the fair market value of BTC on the day you received them, in your country’s currency. Please provide the information requested in your annual tax return to your tax office.
The amount of data you need to include in your message varies depending on your location. Some tax offices are only interested in your net capital gains and losses, as well as any extra income you might have from cryptocurrency. Some organizations, like the IRS, want people to report every instance of buying, selling, or spending BTC and other cryptocurrencies.
You can save yourself a lot of time and hassle by using a BTC tax.
Just connect the crypto wallets and exchanges you use to API or by importing a CSV file of your transaction history. Your crypto tax app will help you determine your cost basis, the value of your crypto on the day you disposed/received it, taxable transactions, and calculate your capital gains and losses. You need to download a tax report from the tax office when it is time to file your annual tax return. You can either give this report to your accountant or fill out the tax return yourself.
Frequently Asked Questions on Bitcoin Tax
Do you pay taxes on lost or stolen crypto?
Generally, you cannot deduct losses for crypto that is stolen or lost on your taxes. According to the IRS, there are two types of losses that can occur with capital assets: casualty losses and theft losses. damage, destruction, or loss of your crypto from an identifiable event that is sudden, unexpected or unusual. For instance, if you accidentally send your cryptocurrency to the wrong wallet, this could be considered a casualty loss. However, other factors would need to be considered to determine if the loss is significant enough to be classified as a casualty loss. Theft would occur if your wallet were to be hacked, or if an exchange were to be hacked.
In both cases, you cannot deduct these losses to offset your gains. For the years 2018 to 2025, most losses due to casualty or theft are not tax-deductible. In the future, people who pay taxes may be able to get a deduction by itemizing their deductions instead of taking the standard deduction.
Are there tax-free crypto transactions?
There are some situations where you can make cryptocurrency transactions without having to pay taxes, depending on the type of transaction, the account it is done through, your income, and your filing status.
If the value of your cryptocurrency goes up after you purchase it, you will not be taxed on that increase in value. You won’t have to pay any taxes on your cryptocurrency until you decide to sell or exchange it.
If you make cryptocurrency transactions in a tax-deferred or tax-free account, like a Traditional or Roth IRA, you will not be taxed as you would in a brokerage account. These trades avoid taxation.
The long-term capital gains tax rate can be as low as 0% depending on your income for the year. If your taxable income is less than $41,650 (or $83,350 for married couples filing jointly), you can sell your cryptocurrency without paying taxes in 2022.
Can the IRS track crypto activity?
Even though cryptocurrencies are anonymous, the IRS may still be able to track your crypto activity.
An example of this would be if you traded cryptocurrency on an exchange that provided a 1099-B form to the IRS documenting the trade.
The IRS uses blockchain analytics tools to identify digital wallets associated with crypto activity and to track individuals suspected of tax evasion or money laundering.
You will need to report all cryptocurrency activities on your tax return.
How are crypto transactions reported?
If you use cryptocurrencies to pay for goods or services, or to trade them through a brokerage, this is considered a sale or exchange. This means that you will have to keep track of how much you paid for your cryptocurrency and when you purchased it. These transactions are typically reported on Form 8949, which is used to report capital gains and losses from the sale of certain assets, as well as Schedule D, which is used to report the total capital gains and losses for the year, and Form 1040, which is the individual income tax return form.
Does Coinbase report to the IRS?
In 2016, Coinbase was required to provide transaction information to the IRS for its customers as the result of a John Doe Summons. After an investigation, the company gave over information on 8 million customer transactions.
Forms 1099-MISC are only issued today if the company pays out rewards or bonuses for taking specific actions on the platform. If you want the company to issue both you and the IRS a Form 1099-MISC, you may need to exceed the $600 minimum payment threshold.
In 2023, crypto exchanges will be required to send 1099-B forms reporting all transaction activity.
Even though you are not required to report Coinbase activity to the IRS through direct means, you are still required to include this information on your tax return as it is taxable income. The platform provides access to account information that can be used to calculate any capital gains or losses, as well as the taxes that must be paid on them.
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