How To Calculate How Much You Owe In Taxes
The IRS states that investors can identify the coins they are selling as long as there are detailed records. According to the highest cost basis method, also known as Highest-in-First-out accounting, you could be subject to lower taxes as calculated with least amount of gains.;
If you do not have a detailed trading history, the accounting method would automatically default to First-in-First-out , where it would be assumed that you are selling the earliest purchased unit of crypto asset regardless of price.
After recording the gains under the preferred accounting method, the gains are categorized as either short-term or long-term capital gains depending on the duration of which the coins were held.;
Short-term gains are calculated when you have held the cryptocurrencies for less than 12 months. These capital gains also count toward cryptocurrency tax and are then added to your regular income and it would be subject to your ordinary income tax bracket.
Your capital gains would be considered as long-term if you sell your tokens after holding them for over 12 months. These gains would be subject to taxes on crypto that range from the 0% to 20% tax brackets.
For an individual that has made capital gains of $40,000 or less during the fiscal year, the investor would be subject to a 0% tax rate. However, individuals who have made over $40,000 during this period would be subject to a tax rate of 15%.
What Our Customers Say
Used CryptoTrader.Tax after unsuccessfully trying a competitor’s site. CryptoTrader.Tax software imported transactions easier and the reconciliation resulted in just a few warnings to be resolved. The team the quickly help me navigate through resolving those warnings! TOP NOTCH!!!
Used this service this tax season and loved it! Everything went smoothly and was easy to understand, only took a few minutes to sign up and had everything in a nice format. Definitely using this again next year. I have told Friends and Co-workers about this service and highly recommend it to everyone!
Just wanted to leave a quick review. I have used Cryptotrader for the last three years now. In my opinion, one of the best in what they do. I have tried other sites/services but they just didn’t work out for me. I feel like this site is very user friendly and the support via chat is great as well. Would recommend to others.
Love CryptoTrader.Tax. Fabulous platform for quickly calculating the tax impact of your crypto trading. Thank you so much for this service. Have used it for clients and my own trading. Great reports and even completes the forms for you. Works like a charm.
Reporting As Either Income Or Capital Gain
Generally, if disposing of cryptocurrency is part of a business, the profits you make on the disposition or sale are considered business income and not a capital gain. Buying a cryptocurrency with the intention of selling it for a profit may be treated as business income, even if its an isolated incident, because it could be considered an adventure or concern in the nature of trade.
If the sale of a cryptocurrency does not constitute carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has realized a capital gain.
Capital gains from the sale of cryptocurrency are generally included in income for the year, but only half of the capital gain is subject to tax. This is called the taxable capital gain. Any capital losses resulting from the sale can only be offset against capital gains; you cannot use them to reduce income from other sources, such as employment income. You can carry forward your capital losses if you do not have any capital gains against which to offset those losses for the year or any of the preceding three years.
For more information on capital gains, see Guide T4037, Capital Gains.
You May Like: Can You Use Bitcoin To Buy Things
Cryptocurrency Is Taxed As Capital Gains
In Canada, cryptocurrency is taxed similarly to any other commodity. When cryptocurrencies are exchanged for each other, the challenge is this creates a taxable event and a disposition. Half of the gains are taxed and applied to your taxable income for the year. For example, if I acquired a cryptocurrency for $2,000 and subsequently sold it for $4,000, I would report a $1,000 capital gain , which would be added to my income and taxed at my marginal tax rate. However, this is only applicable if you are a regular trader. If you are a day trader who owns crypto for short periods of time, the CRA may consider your trading to be a business and you will be required to file taxes as such . As a result, your capital gain becomes your business income, which is not subject to the 50 percent rule. Much of the challenge in recent years has been on how to calculate the adjusted cost base when only partial currencies are exchanged or liquidated. The adjusted cost base then becomes challenging, and online platforms help assist and keep tracking the weighted average of the adjusted cost base calculations.
We have been helping clients across the USA and Canada in terms of calculating their adjusted cost base when it comes to cryptocurrencies, and we are gladly welcoming new clients. Please get in touch by booking a consultation.
Which Tax Documents Does Binance Give You
Binance does not do much of the hard work for you when it comes to calculating your crypto taxes. Whereas some U.S. based such as and Gemini will fill out IRS forms for you, Binance only gives a list of all your trade history.
Binance gives you the option to export up to three months of trade history at once.
Note: If you traded on Binance’s Margin or Futures platforms in addition to their spot exchange, you’ll need to go through the export process for each of these too.
The exported document will look like this.
As Binance does not offer USD trading pairs, instead using Tether , you cannot immediately calculate the cost-basis for your purchases, i.e. the amount in USD that the cryptocurrency was worth at the time you bought it. This cost-basis figure is necessary for calculating any capital gains and/or losses.
Of course, as a stablecoin the price of Tether doesnt fluctuate much, but its an extra step to keep in mind.
Also Check: Where Is Crypto Com Based
What Happens If The Cryptocurrency Tax Calculator Shows A Loss
Selling a crypto asset at a lower value than it was originally purchased for will incur a capital loss. Its possible to use capital losses to offset gains in the current financial year or future financial years. If your cryptocurrency capital gains tax estimate returns a capital loss, its best to consult your tax professional or tax advisor on the implications of realising capital losses.
Capital Gains Using Acb
Average Cost Basis is the simplest of all accounting methods. You simply calculate the average price for your holdings in a coin and use that as the cost-basis. The cost-basis for John’s two sell transactions can be calculated like this:
Transaction #3:;Sell 0.5 BTC. John has 0.75 BTC and bought it for a total of 600 USD. The average cost for 1 BTC is:;600 / 0.75 = 800 USD. So, the cost-basis for 0.5 BTC is:;800 x 0.5 = 400 USD.
Transaction #4:;Sell 0.25 BTC. At this point John only has 0.25 BTC left and bought it for:;600 – 400 = 200 USD. However, this sale also had a $10 fee so the actual cost-basis is $210.
Now that we have the cost-basis for all transactions, the capital gains can be easily calculated:
Capital gains for txn #3:;
200 - 400 = -200 USD
Capital gains for txn #4:;
400 - 210 = +190 USD
The final capital gains using ACB are -10 USD which means John made a loss of $10.
You May Like: Where Is Crypto Com Located
How Is Margin Trading Taxed
Cryptocurrency exchanges like BitMex have popularized the use of margin trading. The IRS has not yet set forth explicit guidance on how cryptocurrency margin transactions should be handled from a tax perspective, but we can infer the likely treatment based on other guidance.
A margin trade consists of borrowing funds from an exchange to carry out a trade and repaying the loan afterwards. The conservative approach is to treat the borrowed funds as your own investment and pay capital gains tax on the margin trading profit and loss.
Option : First In First Out
If you do not have detailed records of the shares that were sold, the ATO has accepted the use of the first-in-first-out presumption as a method of determining which shares were disposed of. This means that the first shares purchased will be the first shares to be sold. This gives the investor less control over the CGT implications of selling specific shares.;
Recommended Reading: How To Spend My Bitcoin
Find The Right Cost Basis Method For You
Cryptocurrency tax software like CryptoTrader.Tax can automatically handle all of your cryptocurrency tax reporting. Simply upload your crypto transaction history into the platform and generate your necessary crypto tax reports with the click of a button. The platform supports several different costing methods like FIFO, LIFO, and HIFO.
Get started with a free preview report today. You donât need to enter your credit card information until youâre 100% sure your transaction information is accurate!
*This post is for informational purposes only and should not be construed as tax, investment, or legal advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.
How To Use The Crypt Return Calculator
This crypto return calculator is designed to show you your percentage gain or loss and also back to break-even. Let’s use a simple example to demonstrate. Keep the Use Crypto Price radio button selected. Set the Enter Initial Crypto Price to 10000. Set the Enter Final Crypto Price to 7000. Click Calculate.
In the above example we can see that if we firstly invested money into a coin with an initial price of $10,000. Then that coin’ price dropped to $7,000. There was a loss of -30%. We would need to gain 42.86% to get back to even.
Thanks for using our tool and good luck with the trading! You might like to check out our Crypto Blog. Our first article looks at How to Hedge Crypto to Make Consistent Returns From Funding.
This post and crypto tool are not intended to be used as general or personal cryptocurrency investment advice. I am not a financial advisor and recommend you consult with a financial professional before making any serious financial decisions.
Read Also: How To Scan Bitcoin Qr Code Coinbase
There Is A Bit Of Relief For Bitcoin Taxes
Bitcoin taxes can be a bummer, but at least you can deduct capital losses on bitcoin, just as you would for losses on stocks or bonds. These losses can offset other capital gains on sales. When youre done tallying your winners and losers, you cant write off a loss of more than $3,000.
With drastic fluctuations in bitcoins price;happening all the time, many bitcoin speculators will have losses. If you have losses on bitcoin or any other cryptocurrency, make sure you declare them on your tax return and see if you can reduce your tax liability.
Capital Gains Using Lifo
Last In First Out is the opposite of FIFO – here the most recently bought coins are sold first.
Transaction #3:;Sell 0.5 BTC. Cost-basis for this transaction is relatively straightforward, since the most recent purchase was for 0.5 BTC at a cost of;500 USD;- this becomes the cost-basis.
Transaction #4:;Sell 0.25 BTC. As txn #2 was fully used as the cost-basis for txn #3, you now move to the crypto that was bought before it, which is the 0.25 BTC bought for 100 USD. The amount of crypto being sold and bought is the same so the cost-basis is simply 100 USD. However, you must add the selling fee of $10 so the final cost-basis becomes;
100 + 10 = 110 USD.
The capital gains are calculated in the same way as FIFO/ACB:
Capital gains for txn #3:;
200 - 500 = -300 USD
Capital gains for txn #4:;
400 - 110 = +290 USD
The final capital gains are thus
Recommended Reading: Do You Report Cryptocurrency On Taxes
Tax Treatment Of Cryptocurrency For Income Tax Purposes
Cryptocurrency is a digital representation of value that is not legal tender. It is a digital asset, sometimes also referred to as a crypto asset or altcoin that works as a medium of exchange for goods and services between the parties who agree to use it. Strong encryption techniques are used to control how units of cryptocurrency are created and to verify transactions. Cryptocurrencies generally operate independently of a central bank, central authority or government.
The following pages outline the income tax implications of common transactions involving cryptocurrency. When we refer to cryptocurrency in this publication, we are talking about Bitcoin or other similar virtual currencies.
How Does The Irs Know About Your Crypto
The IRS uses a variety of tactics to detect cryptocurrency investments and unreported income. The most predominant of which is the 1099 reporting system.
Major exchanges like Coinbase, Gemini, Uphold, Kraken, and others report certain customer activity to the IRS using form 1099-K and/or other related 1099âs. These 1099âs all serve the same general purpose: to report non-employment related income to the IRS.
Both you and the IRS get sent a copy of these forms at year-end.
If the IRS receives a 1099 from your crypto exchange but sees no cryptocurrency income reported on your taxes, your account will be flagged and an automated CP2000 letterwill be sent alerting you of your non-reported income and tax liability.
You can learn more about how 1099-K works for your crypto exchange activity here.
Outside of 1099 reporting, the IRS works with blockchain analytics companies like Chainalysis to track cryptocurrency movements directly on-chain. Since 2015, the IRS has spent more than 10 million dollars on Chainalysis contracts. They use this data to identify tax fraud and money laundering.
Don’t Miss: How To Do Technical Analysis Cryptocurrency
How Crypto Tax Calculation Works
To accurately compute your tax liability, you will need to track your tax lots. Tax lots entail the cost basis , the time held, and the price at which you traded away or sold the crypto. Cryptocurrency tax software handles this automatically, using your investment and trading history.
Youll need your transaction history in order to track your tax lots. Additionally, for each sale or exchange, you will need the following information:
- Amount and currency of the coin or token sold
- Fiat value at time of acquisition
- Date of acquisition
- Fiat value at time of trade or sale
- Date of sale
It is very important to keep detailed records because trades are challenging to backfill, and any missing cost basis increases your tax liability.
You can back-fill missing data from receipts and exchange transaction confirmation emails, but it is much simpler to back up your information from exchanges regularly. Keeping notes on special situations, such as lost coins and ICOs, will also help you fill out your tax forms. Our accountants are also experienced in handling missing data for tax calculations.
Do Crypto Gains Get Taxed And How Much
In addition to crypto trading and investment profits, interest earned from staking cryptocurrencies, mining and airdrops would also be taxed as ordinary income under the tax brackets accordingly.
For cryptocurrency miners, income generated in exchange for this work would also be taxed based on the entire value of the digital assets obtained by mining.
If you have received payment for goods and services in digital currencies, the payment also counts as taxable income. If you have converted or swapped cryptocurrencies, for example, Ethereum to Bitcoin, you would also be taxed on the gains you made in the transaction. Your Bitcoin tax rate would depend on multiple factors, which will be discussed in more detail in this article.
Activities including transferring digital assets between exchanges, buying cryptocurrencies, gifting digital currencies and donating virtual assets are not considered taxable events.
Don’t Miss: Where Is Gemini Crypto Exchange Located
How To Calculate A Fully Diluted Market Cap
Diluted market cap is a measure that gives us an idea about the future growth of the network, and is calculated by multiplying the current value of an individual coin with the total intended supply.
|Diluted Market Cap =|
current price of an individual coin x total intended supply
For example, Bitcoin has a max supply of 21 million, but there are currently 18.6 million BTC in circulation. This means in the future, all 21 million coins will eventually be in circulation. So when we multiply this with the current price of 1 BTC, we get a Bitcoin Fully Diluted Market Cap = $55,165 x 21,000,000 = $1,158,476,473,502. Thus, the fully diluted market cap is approximately $1.1T.
Cryptocurrency Capital Gains And How To Calculate Them
Cryptocurrency capital gains taxes are becoming a point of interest for governments. ;In 2017, which will likely come to be known as the year crypto went mainstream, the combined market cap for all cryptocurrencies rocketed up from 15 billion to over 600 billion dollars. ;This kind of growth isnt hard for just the day-traders and blockchain evangelists to ignore, but for governments as well.
Don Fort, the Chief of the IRS criminal investigation unit, recently spoke on a tax conference panel and discussed at length how cryptocurrency is becoming a new area of enforcement for him.;Other events like the IRS Coinbase Summons and the IRS warning sent to tax filers show the clear intentions of the US government.
Because cryptocurrency is treated as property , it is subject to capital gains taxesjust like stocks, bonds, real-estate, and other forms of personal property. ;Boiled down, you incur capital gains whenever you sell property for more than you purchased it for.; You then report this gain on your yearly taxes and pay the requisite capital gains tax as part of your annual income tax reporting. Thats the end of it.; The same is true for cryptocurrency.
So how do I calculate my cryptocurrency capital gains?
Step 1 Determine your cost basis
/ Quantity of Holding = Cost Basis
/5.1 = $99.50 per Litecoin
Step 2 Determine the Fair Market Value at the time of the trade
$300 = $101.00
160 100 = $60.00 capital gain
IRS: See thats easy enough isnt it?
Don’t Miss: Which Crypto Exchange Should I Use