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Simplify German Crypto Taxes with Kryptos, Even in Tough Market Sentiments

Germany's recent Bitcoin sell-off has ignited discussions among crypto investors. This event has not only affected market dynamics but also highlighted the importance of crypto tax compliance.

Recent headlines about Germany's large Bitcoin sell-off have ignited discussions among crypto investors. This event has not only affected market dynamics but also highlighted the importance of crypto tax compliance. 

With the tax deadline on July 31st approaching, investors need a reliable solution to avoid penalties and ensure accurate reporting. Kryptos, a leading crypto tax platform, can help you streamline your crypto tax reporting process, ensuring accurate reporting and compliance with German tax laws.

A Backstory on Germany’s Bitcoin Liquidation

Germany's entry into the cryptocurrency market began with a major seizure of Bitcoin linked to the piracy website Movie2k.to. In January 2024, German authorities seized nearly 50,000 Bitcoins, valued at approximately $2.2 billion. This operation, led by officials from Saxony, marked one of the largest seizures of digital assets in Germany's law enforcement history, highlighting the intersection of technology, financial crime, and law enforcement.

Impact on Market Sentiment

Germany’s Bitcoin sell-off has raised critical questions about market stability and investor sentiment. While the goal was to recover substantial funds for the government, the sell-off also highlighted the risks associated with concentrated government holdings of digital assets. Analysts noted that significant sales could influence market sentiment and trading behaviours among both institutional and retail investors.

Crypto Tax Implications for Investors

One of the critical aspects of this sell-off is its implications on tax on cryptocurrency. In Germany, the Bundeszentralamt für Steuern (BZSt) is clear on its taxation policy: If crypto such as Bitcoin and Ethereum or any other crypto currencies is held for less than one year, it is subject to capital gains tax. But, if you hold your crypto for over a year, any gains are tax-free.

The tax rate you’ll pay is the same as your regular Income Tax rate, which can be up to 45%, plus a possible 5.5% Solidarity Tax.

Selling your crypto in response to market movements, especially within a year of acquisition, can lead to substantial tax burdens. This makes it crucial for investors to consider their holding periods and the potential tax implications before making hasty decisions based on market sentiment.

According to the EU's Sixth Anti-Money Laundering Directive, stricter regulations have been imposed on financial services companies serving cryptocurrency users since June 3, 2021. This directive aimed to enhance efforts against money laundering and illicit activities through increased data sharing among EU member states.

Looking ahead, another EU directive, Dac8, anticipated in 2025, is set to empower the BZSt to verify ownership of cryptocurrencies. This development could enable the German tax office to access and review accounts held by crypto companies, providing deeper insights into crypto assets.

The Complexities of Crypto Taxation in Germany

Cryptocurrencies have become a major part of Germany's financial landscape, drawing in a wide range of investors. However, the regulatory environment around digital currencies is complex and always changing. German tax authorities demand detailed reporting of crypto transactions, including gains and losses, which can be a daunting and time-consuming task for investors.

Calculating taxes on crypto transactions means combing through numerous trades, exchanges, and wallets, often taking weeks of careful work. This poses a big challenge for everyday investors who may lack the time or resources to handle their tax reporting accurately.

How Kryptos Can Simplify Your Crypto Tax Reporting! 

For individual investors and crypto enthusiasts, managing the tax implications of  your crypto assets  can be quite a headache. 

Kryptos can significantly ease this burden. Offering comprehensive tracking of all your crypto transactions, ensuring accurate calculation of gains and losses. It simplifies tax reporting by generating detailed tax reports that comply with local regulations, helping investors stay compliant and avoid costly mistakes.

With Kryptos, investors can effortlessly manage their crypto taxes, track holding periods, and make informed decisions that align with both market conditions and tax efficiency. 

This tool is particularly valuable in a volatile market, where timely and accurate tax management can make a significant difference in an investor's overall financial strategy. 

Key Features 

Kryptos stands out as a top crypto tax calculator with over 5,000+ DeFi protocols, 100+ popular exchanges and support for more than 20 jurisdictions. This extensive capability allows users to effectively manage their portfolios and tax reporting, no matter where they are located. Partnerships with major platforms like Binance, The leading crypto exchanges and Gate Labs.io add to its credibility and trustworthiness.

Real-Time Portfolio Management

In addition to tax reporting, Kryptos provides real-time tracking and in-depth portfolio analysis. Users can keep an eye on their crypto investments  , evaluate performance, and get tailored financial insights all in one place. This comprehensive approach also includes monitoring DeFi positions and NFTs, ensuring investors have easy access to the information they need to navigate the complexities of the crypto market.

Shaping the Future with an Upcoming Data Layer

Kryptos is evolving its business model to focus on a robust data layer, which aims to create a standardized data protocol. This strategic move enhances interoperability and compliance within the blockchain ecosystem. By linking traditional finance with decentralised finance, Kryptos is fostering a more integrated and efficient financial environment.

Kryptos is at the forefront of Web3 finance by establishing a unified financial data protocol that connects various blockchain platforms. As the leading Open Banking standard for Web3, Kryptos empowers developers, businesses, and users with tools to easily share and utilise data across multiple blockchain networks. With support for over 5,000 platforms—including major centralised exchanges, DeFi protocols, and blockchain networks—Kryptos improves interoperability, compliance, and accessibility in the decentralised finance sector. This supports a wide range of applications like real-time financial analytics, compliant tax reporting, and personalised portfolio management, driving global innovation and adoption.

Conclusion 

German crypto taxes during market uncertainties is indeed a challenge, but Kryptos simplifies it all. This platform not only streamlines tax reporting but also boosts portfolio management, making it easier for investors to manage their crypto transaction with ease. With a strong focus on data integration and user-friendly features, Kryptos stands out as the go-to tool for German investors tackling crypto taxes. Trust Kryptos to handle the complexities, so you can focus on growing your investments with confidence.

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German MP’s Plea to Halt Bitcoin Sell-off Highlights Crucial Role of Crypto Tax Compliance

German lawmaker and Bitcoin activist Joana Cotar highlights risks in rapid Bitcoin sell-offs and their tax consequences. Simplify compliance with our intuitive crypto tax app.

German lawmaker and Bitcoin activist Joana Cotar has called on the government to stop its “hasty” Bitcoin sell-off, arguing that Bitcoin should be adopted as a “strategic reserve currency” to diversify treasury assets and protect against currency devaluation. Cotar's appeal underscores the growing recognition of cryptocurrencies' potential role in national economies.

However, this rapid sell-off could have significant tax implications for individuals and businesses involved in cryptocurrency. As the government engages in large-scale transactions, the increased market activity can lead to fluctuations in cryptocurrency prices, potentially affecting your capital gains and tax obligations.

While the debate around Bitcoin's strategic importance continues, it’s vital for individuals and businesses engaged in crypto activities to understand and comply with Germany’s crypto tax regulations. With the right guidance and the right crypto tax tool *Ahem, we got an app for that* you can not only manage your crypto taxes but you can also effectively save, strategize, plan and accurately report your taxes on time to ensure proper tax compliance and avoid penalties for a better financial stability.

Do You Pay Taxes on Bitcoin or Any Other Cryptocurrencies in Germany?

Yes, you do. In Germany, cryptocurrencies are classified as “Private Assets”, and the tax implications vary based on how you use them. 

Profits from selling cryptocurrencies within one year of acquisition are taxable if the gains exceed €600. Beyond this threshold, all profits are subject to tax and must be declared as part of your annual income. Additionally, activities such as staking, mining, or earning income in cryptocurrencies also attract taxes.

Key Tax Rates and Rules

Understanding the tax rates and rules for cryptocurrencies in Germany is essential for effective tax planning:

  • Short-term capital gains: Profits from selling cryptocurrencies held for less than a year are taxed as part of your income. The rate depends on your total annual income and can range from 14% to 45%.
  • Long-term capital gains: Cryptocurrencies held for more than a year are tax-free if they are sold privately and not used for capital gains activities like margin trading.
  • Other taxable activities: Income from staking, mining, and lending is considered taxable income and must be reported.

Can the BZSt track crypto?

If you’re wondering whether you can hide some of your transactions from the BZSt by not reporting them on your tax report. The answer is a big NO with an exclamation mark.  

Because the BZSt can ACCESS all your records and easily correlate your tax report with their database and figure out what’s wrong.

Ever since the EU’s sixth anti-money laundering directive was transposed into national law in December 2020, regulated entities in EU member states were mandated to comply with the new regulations by 3rd June 2021. These entities include any exchange offering financial services in the crypto space that now has to comply with harsher guidelines around when and how they identify their customers.

In 2025, the new EU directive known as Dac8 is set to take effect, giving the German tax office (BZSt) the authority to verify crypto ownership. This means the BZSt will have the power to inspect crypto companies' accounts and obtain information about crypto assets.

Importance of Timely Filing

Filing your crypto taxes on time is not just about compliance; it's about protecting your financial future. Germany imposes strict penalties for late or inaccurate tax filings

Filing your crypto taxes before the July 31st deadline helps you avoid penalties. 

Failing to accurately report your crypto taxes can lead to:

  • Fines: Missing the deadline can lead to penalties starting at €25 per month, which can add up quickly if not addressed.
  • Interest on Unpaid Taxes: Unpaid taxes accrue interest at a rate of 0.5% per month (6% annually), compounding the amount owed.
  • Audit Risk: Late or inaccurate filings increase the likelihood of audits by tax authorities, which can lead to further penalties and complications.
  • Legal Consequences: In severe cases of non-compliance or evasion, you may face criminal charges, resulting in substantial fines or imprisonment.

Tips for Managing Your Crypto Taxes

  • Keep detailed records: Maintain comprehensive records of all your cryptocurrency transactions, including dates, amounts, and the value in euros at the time of each transaction.
  • Use tax software: Utilize crypto tax software like Kryptos to automate the process of tracking and calculating your tax liabilities.
  • Consider Tax Loss Harvesting: Tax-loss harvesting allows you to use losses to offset short-term capital gains. This strategy applies if you held your crypto for less than 12 months. Unlike long-term capital gains, which are not taxable, long-term losses cannot offset gains.
    Managing multiple wallets and exchanges can make it challenging to track positions that are currently at a loss. Kryptos simplifies this process by integrating with your wallets and exchanges, identifying opportunities for tax-loss harvesting and helping you optimize your tax strategy.
  • Consult a tax professional: Given the complexity of crypto tax regulations, consulting with a tax advisor can help ensure you meet all your obligations and take advantage of any available deductions.

Simplify it ALL with Kryptos!

Managing crypto taxes can be daunting, but tools like Kryptos make it easier.

Kryptos automatically imports your transaction data from over 5000+ DeFi Protocols, calculates your gains and losses, and generates accurate tax reports. This streamlines the entire process, ensuring accuracy and compliance with German tax laws.

By using Kryptos, you can.. 

✅ Save time

✅ Reduce the risk of errors

✅ Have peace of mind knowing your crypto taxes are handled correctly. 

Don’t wait until the last minute—start organizing your crypto taxes today and avoid the stress of deadlines and penalties.

If you still have any doubts regarding the integrations or generating your tax reports, you refer to our video guide here.

Need a detailed overview on Germany Crypto taxes? check out our Germany Crypto Tax Guide 2024.

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Commerzbank’s Crypto License: What It Means for Your Tax Obligations

Commerzbank AG is the first full-service bank in Germany with a crypto custody license, highlighting the importance of understanding crypto tax implications.

With Commerzbank AG becoming the first full-service bank in Germany to secure a crypto custody license, a new era for digital assets is unfolding. This exciting development signals a deeper integration of cryptocurrencies into the traditional banking system. As crypto continues to gain popularity, understanding the tax implications is more important than ever.

We get it Crypto Taxes can be boring and no fun but not paying attention to it will lead to hefty penalties. It’s better to act now to ensure your investments remain profitable. Let’s have a quick look on how you can manage your crypto taxes effectively and how tools like Kryptos can make the process seamless.

Why Crypto Taxes Matter

As cryptocurrencies gain traction, regulatory bodies emphasize the importance of tax compliance. 

In Germany, cryptocurrencies are classified as “private assest”, impacting how they are taxed:

1. Tax Rates and Rules:

  • Holding Period:
    • Tax-Free Profits: If you hold your crypto for more than one year, any profits from selling are completely tax-free.
    • Short-Term Gains: If sold within a year, profits are subject to income tax. The tax rate can range from 0% to 45%, depending on your total income.
    • Exemption Limit: Gains under €600 per year from all private sales transactions are tax-exempt.
  • Staking and Mining: Rewards from staking and mining are considered taxable income, calculated at the market value when received.
  • Trading: Frequent trading may be classified as a commercial activity, which could subject you to additional trade tax.

2. Importance of Timely Filing:

Filing your crypto taxes by the July 31st deadline helps you avoid penalties. Late submissions can result in fines and increased scrutiny.

3. Potential Penalties for Non-Compliance

Failing to report or underreporting your crypto taxes can result in various penalties, including:

  • Fines: Late submission of your tax return can incur penalties starting at €25 per month past the deadline. The amount can increase depending on the extent of the delay.
  • Interest on Unpaid Taxes: If taxes are not paid on time, an interest rate of 0.5% per month (6% per year) may be applied to the outstanding amount.
  • Increased Scrutiny: Non-compliance can lead to audits and further investigations by tax authorities, potentially resulting in additional penalties.
  • Criminal Charges: In severe cases of tax evasion or fraud, criminal charges may be pursued, which can lead to more substantial fines or even imprisonment.

Essential Tax Tips

  • Hold for Over a Year: By holding your crypto assets for more than a year, you can benefit from tax-free profits.
  • Maintain Accurate Records: Keep detailed records of all transactions, including dates, amounts, and EUR values. This practice is crucial for compliance and accurate tax reporting.
  • Use Tax Software: Tools like Kryptos simplify the tracking of transactions, calculation of gains and losses, and generation of tax reports.

How Kryptos Can Simplify Your Crypto Taxes

With Kryptos, Reporting your Crypto Taxes becomes much easier and efficient. Here’s how:

  • Automated Data Import: Easily sync transactions from multiple wallets and exchanges.
  • Comprehensive Tax Reports: Generate detailed and accurate reports for capital gains, income, and other relevant data, ensuring accurate filings.
  • Error Reconciliation: Identify and correct discrepancies in your transaction data for precise reporting.

By leveraging Kryptos’s features, you can streamline your tax reporting process, maximize tax efficiency, and stay focused on your crypto investments without the administrative burden.

In conclusion, as Germany embraces digital assets with secure platforms like that of Commerzbank, staying informed and compliant with tax regulations is vital. Timely and accurate tax reporting not only avoids penalties but also supports the overall growth and acceptance of cryptocurrencies in the financial landscape. 

For more information and to simplify your crypto tax obligations, consider using Kryptos as your go-to solution.

To know more about how to proceed ahead, check out our Germany Crypto Tax Guide 2024.

Once you’re ready to generate your tax report visit Kryptos., for a smooth tax season !

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Most Popular Crypto Exchanges in Germany 2024. What’s their que with The German Tax Office (BZSt)?

5 Most Popular German Crypto Exchanges that can help you compare fees, products and provide the BZSt with the information they need about your transactions.

Crypto exchanges serve as the go-to platforms for purchasing cryptocurrencies in the crypto market. Just a few years back, approaching these exchanges required caution. The lack of regulation and instances of fraud had dampened their popularity.

Yet, things have drastically improved. Crypto exchanges have acknowledged these issues and are making concerted efforts to enhance security and user experience. In this regard, tax implications are one of the most disputed security concerns for them. 

Tax implications by The German Tax Office (BZSt) requires crypto investors to pay Income Tax on crypto activities such as short-term profits from selling, swapping, or spending crypto, as well as most other crypto income at a  fair market value of any coins in EUR the day you received them, keeping in mind the crypto exchanges shall adhere to these implications as well at the organisational level. 

Reporting these taxable crypto transactions in your annual tax return can be challenging since not all crypto exchanges make the necessary information easily accessible. Fortunately, some exchanges simplify the process. Here are the top 5 German crypto exchanges that can help you compare fees, products and provide the BZSt with the information they need about your transactions.

Bitstamp

Founded in 2011, Bitstamp is one of the world's earliest cryptocurrency exchanges, known for its competitive fees and user-friendly approach for beginners.

Pros:

  • Low Fees: Bitstamp offers competitive fees starting at 0.4%, which decrease with higher trading volumes.
  • Advanced Trading Features: The platform provides advanced options like limit orders and stop orders, giving traders more control.
  • Customer Support: Bitstamp offers robust customer support through live chat and phone, ensuring users can get help whenever needed.

Cons:

  • Security Breach: Despite its strong reputation, Bitstamp experienced a security breach in 2015, leading to a loss of $5.2 million worth of Bitcoin.
  • Limited Cryptocurrency Selection: Bitstamp offers fewer than 100 cryptocurrencies for trading, which is less than many other exchanges.

Generate your crypto tax report with our step-by-step on how to connect your Bitstamp exchange to Kryptos! 

Coinbase

Coinbase is one of the world's largest crypto exchanges, renowned for its reliability and user-friendly platform for both beginners and experienced traders.

Pros:

  • Perfect for Beginners: Coinbase provides an intuitive and seamless experience, making it easy for novice investors to navigate the world of crypto.
  • Top-Notch Security and Compliance: Licensed by BaFin, Coinbase adheres to stringent German regulatory standards, ensuring high levels of security.
  • Additional Features: Beyond buying, selling, and trading crypto, Coinbase offers staking, a Coinbase Card, and educational resources through its Learn and Earn program.

Cons:

  • Higher Fees: Coinbase's fees are on the higher side, especially for credit or debit card purchases and staking activities.
  • Customer Service: While common in the industry, Coinbase's TrustPilot score reflects challenges in customer service, indicating room for improvement.

For Coinbase users, we offer a simple guide to link your Coinbase exchange and Coinbase Wallet to Kryptos, making your tax reporting accurate and complaint.

Crypto.com

Crypto.com has quickly become a favourite among crypto enthusiasts, offering a broad range of cryptocurrencies and additional features like staking, DeFi, and crypto cards.

Pros:

  • User-Friendly Experience: Crypto.com is known for its intuitive platform, making it easy for both beginners and experienced traders to navigate and trade.
  • High-Level Security: The exchange prioritizes security, implementing robust measures to protect users' assets and personal information.
  • Variety of Trading Options: Crypto.com caters to all types of traders with a wide range of trading options, including spot trading, derivatives, and DeFi products.

Cons:

  • Limited Fiat Support: The platform has limited support for fiat currencies, which can be a drawback for users looking to trade with a wider variety of fiat options.
  • Regulatory Challenges: Operating within a complex regulatory environment, Crypto.com and its users must stay updated on evolving regulations to ensure compliance.

Want to simplify your crypto tax reporting? Our step-by-step guide will provide instructions on how to connect your Crypto.com to Kryptos.

Kraken

Kraken is a long-standing and reputable global crypto exchange offering a variety of products to meet the needs of all users.

Pros:

  • Established Reputation: Known as one of the oldest crypto exchanges, Kraken has built a solid reputation and is well-regarded in the crypto community.
  • Strong Security: Kraken uses robust security measures to ensure the safety of users' funds and personal information.
  • Fiat Gateway: The platform supports a wide range of fiat currencies, making it easy for users to deposit and withdraw traditional currency.

Cons:

  • Complex Interface: Kraken’s platform may pose a challenge for beginners due to its advanced trading features and somewhat complex interface.
  • Limited Altcoins: While Kraken supports many popular cryptocurrencies, it offers fewer lesser-known altcoins compared to some other exchanges.

Want to simplify your Kraken tax reporting? Our step-by-step guide shows you how to connect your Kraken account to Kryptos.

Nexo

Nexo, established in 2018 and based in Switzerland, caters to over 5 million users worldwide, making it a top choice for those interested in crypto lending and borrowing.

Pros:

  • Crypto Loans: Nexo is well-known for its crypto loan products, allowing users to both borrow and lend crypto to earn interest.
  • Competitive Fees: Nexo Pro offers low fees, ranging from 0.3% to 0.4%, making it an affordable option for investors.
  • Rewards: Nexo provides opportunities to earn passive income through a variety of earning products, maximizing returns on crypto holdings.

Cons:

  • Limited Crypto Selection: Nexo supports around 60 cryptocurrencies, which is fewer than what many other exchanges offer.
  • Regulatory Challenges: While operating under EU regulations, Nexo has faced regulatory hurdles in other jurisdictions. Notably, it ceased operations in the US due to regulatory complexities.

Generate your crypto tax report effortlessly by connecting your Nexo exchange to Kryptos with our detailed instructions.

Do Crypto Exchanges Report to the BZSt?

Yes, it’s likely that crypto exchanges share KYC data with the BZSt and other EU tax authorities. Under EU data sharing directives, crypto exchanges like Coinbase, Crypto.com must provide KYC data to tax authorities and other agencies upon request. 

Looking for a crypto tax solution? 

Kryptos is the answer. It connects with all the exchanges mentioned above and over 5000+ DeFi Protocols, along with numerous wallets and blockchains via API or by uploading a CSV file.

Once connected, Kryptos identifies your taxable and non-taxable transactions, calculates your profits, losses, income, and more, and presents it all in a clear tax summary.

To report your crypto transactions, you can file both the Annex SO (Other Income) and the main form ESt 1 A online through Elster. Your Kryptos Complete Tax Report provides all the details you need, including acquisition price, costs, disposal proceeds, and the fair market value of any additional income in EUR. Simply use these figures to complete your tax return forms.

Kryptos is free to use. You don’t need to pay a penny to download your crypto tax report. Sign up and try Kryptos for free today!

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ATO Crypto Tax Evasion Guide: Potential Risks and Penalties

Discover the risks and penalties of ATO crypto tax evasion. Know about crypto taxation in Australia and explore legal strategies to minimise taxes.

The growth of cryptocurrency adoption has caught the attention of tax authorities all around the world. Governments are making prominent attempts to regulate cryptocurrency in terms of taxes, including taking necessary actions against any evasions. But despite this, many investors are unable to comply with the tax laws.

In Australia, the ATO, or the Australian Taxation Office, has been actively addressing the issue of crypto tax evasion, making it crucial for individuals and businesses to understand and comply with their tax obligations. 

Failing to do so can have serious consequences, including penalties, legal actions, and reputational damage. In this guide, we explore the potential penalties of any crypto tax evasion and how you can address the issue to ensure legal compliance.

ATO Crypto Tax Evasion: What It Means and Types of Tax-related Crimes

ATO crypto tax evasion refers to the deliberate act of individuals or businesses evading their tax liabilities related to cryptocurrency transactions. It involves the underreporting or failure to report crypto income, capital gains, or other taxable events to the ATO.

When it comes to cryptocurrency tax obligations, individuals and businesses should be aware of the potential penalties for non-compliance. 

The Australian Taxation Office (ATO) takes tax-related offences seriously and identifies two types of crimes concerning taxes: tax fraud and tax evasion

Tax Fraud

This involves intentionally making false representations of your tax liability. These representations are considered fraudulent if you knew they were false or if you made them without genuinely believing they were true. 

It could include providing misleading information about your crypto transactions or deliberately understating your tax liabilities.

Penalties for tax fraud may include hefty fines, interest charges on unpaid taxes, and, in extreme cases, criminal prosecution. If found guilty of tax fraud, individuals may face imprisonment and reputational damage, impacting their personal and professional lives.

Tax Evasion

This refers to any behaviour that results in an avoidance or shortfall of taxes. It could involve activities such as omitting income or falsely claiming deductions without a credible explanation. Even unintentional omissions that lead to tax discrepancies may be deemed as tax evasion.

For cryptocurrency users, tax evasion could occur when failing to report crypto income, capital gains, or any taxable events related to digital assets. The ATO has access to data from cryptocurrency exchanges and financial institutions, enabling them to identify potential tax evaders.

The penalties for tax evasion can also be significant and may include financial penalties, interest charges on unpaid taxes, and potential criminal charges. The ATO may issue default assessments based on available data, resulting in higher tax liabilities than if accurate reporting had been done.

How is Crypto Taxed By the ATO?

Before discussing methods to reduce your crypto taxes, it's essential to understand how the Australian Taxation Office (ATO) approaches the taxation of these digital assets. 

Two types of taxes apply to cryptocurrencies: Capital Gains Tax (CGT) and Ordinary Income Tax.

Capital Gains Tax (CGT)

When you buy or sell cryptocurrencies as an investment, the ATO considers it a capital gains event. This means that any profits or losses you make from selling cryptocurrencies are subject to Capital Gains Tax. The CGT is calculated based on the difference between the purchase price (cost basis) and the selling price of the cryptocurrency.

Cryptocurrencies incur Capital Gains Tax (CGT) in the following scenarios:

  • Selling crypto.
  • Gifting crypto.
  • Trading crypto for other cryptocurrencies.
  • Converting cryptos to fiat currencies.
  • Using cryptos to pay for goods and services.

Ordinary Income Tax:

If you are actively trading cryptocurrencies as a business or as a regular income-generating activity, any profits earned will be regarded as ordinary income, rather than capital gains.

The following tax events incur Ordinary Income Tax:

  • Getting paid in crypto.
  • Mining crypto.
  • Earning staking or holding rewards.

Here are the tax rates for Australian residents.

*The above rates DO NOT include the Medicare levy of 2%.

To know all details, refer to our Australian Crypto Tax Guide.

Can ATO Track My Cryptocurrencies?

Yes, the ATO is taking steps to ensure tax compliance among cryptocurrency traders by implementing a data-matching program. 

Under this initiative, the ATO is collecting bulk records from Australian cryptocurrency designated service providers (DSPs) like Binance to monitor cryptocurrency transactions and verify that individuals are paying the correct taxes. The data shared between crypto exchanges and the ATO can trace back to as early as 2014.

To comply with tax regulations, these exchanges must be registered with Australian Transaction Reports and Analysis Centre (AUSTRAC) and adhere to strict KYC policies, as well as report suspicious transaction activities to AUSTRAC.

In addition, the ATO also employs targeted audits and investigations to uncover potential tax evasion related to cryptocurrencies. They focus on specific industries, high-value transactions, and individuals with a history of non-compliance. 

To strengthen their efforts, the ATO has dedicated specialised teams and task forces with expertise in cryptocurrency taxation, employing advanced auditing techniques to ensure tax compliance within the cryptocurrency space.

Legal Ways to Reduce Crypto Tax

Holding cryptos for a long term – Holding your cryptocurrency for over 12 months offers significant tax advantages. If you sell your cryptocurrency after holding it for 12 months or longer, only 50% of the gains will be subject to taxable income

Picking the suitable cost basis method – Investors have the flexibility to select from various cost basis methods permitted by the ATO, such as first-in-first-out (FIFO), last-in-last-out (LIFO), and highest-in-first-out (HIFO). These methods assist in calculating capital gains and losses during a disposal event.

For further information on the best cost-basis method to help minimise your tax liability, you can refer to our article here.

Tax-free threshold For Australian residents, the first $18,200 of income is tax-free, including up to $18,200 in capital gains (or up to $36,400 in eligible CGT discounted gains) if there's no other income, resulting in zero tax liability as long as it remains within the tax-free threshold.

Crypto as a personal asset –  Any capital gain from the disposal of a personal asset is disregarded, and you won't need to pay capital gains tax on that gain.

Crypto assets used mainly for personal purposes are classified as personal use assets. If you acquire crypto for less than $10,000 and use it for personal consumption relatively quickly, it is more likely to be considered a personal use asset. For more details, visit the official ATO website here.

How to Avoid ATO Crypto Tax Evasion

To avoid the penalties and consequences associated with crypto tax evasion, individuals should take proactive steps to ensure compliance with their tax obligations.

  • Stay informed about ATO's guidelines and regulations regarding cryptocurrency taxation. Understand your obligations as a crypto taxpayer, including reporting requirements, record-keeping, and the calculation of capital gains and losses.
  • Keep detailed records of all your cryptocurrency transactions, including the date, value, type of transaction, and any associated costs. This will help ensure accurate reporting and enable you to demonstrate compliance in the event of an audit.
  • Seek professional advice from a crypto tax specialist. They can provide personalised guidance based on your specific circumstances, ensure accurate reporting, and help maximise deductions within the boundaries of the law.
  • It is crucial to file accurate and timely tax returns, including all cryptocurrency-related income and gains. Avoid providing false or misleading information on your tax return, as this can lead to penalties and potential criminal charges.

By following these steps and fulfilling your crypto tax obligations, you can minimise the risk of being subject to ATO penalties and ensure compliance with tax regulations.

Wrapping Up

The ATO's focus on crypto tax evasion sends a clear message that non-compliance will not be tolerated. Individuals and businesses involved in tax evasion face significant penalties, potential legal action, and reputational damage. Taxpayers must understand and fulfil their crypto tax obligations, ensuring accurate reporting and compliance.

To mitigate the risks associated with crypto tax evasion, individuals and businesses are encouraged to seek professional advice from tax experts well-versed in cryptocurrency taxation. 

Crypto tax software like Kryptos takes out the hassle of staying up-to-date with all the latest ATO guidelines and allows you to calculate your crypto taxes accurately in just a few minutes. Simply import your transactions from 2000+ DeFi protocols, 100+ wallets and exchanges, and supported NFTs.

The app updates all your tax liabilities in a single dashboard and allows you to save taxes ethically while staying fully compliant with the ATO tax laws.

Want to know more? Sign Up Now for free.

FAQs:

1. What are the penalties for crypto tax evasion in Australia?
Penalties for crypto tax evasion in Australia can vary based on the nature of the offence but can include financial penalties of up to 75% of the tax shortfall amount, potential interest charges, and possible criminal prosecution in severe cases.

2. Can tax evasion in the crypto space lead to criminal charges?

Yes, tax evasion, including in the crypto space, can lead to criminal charges. It's considered a serious offence and could result in imprisonment, in addition to financial penalties.

3. How can tax evasion affect an individual's personal and professional reputation?

Tax evasion can greatly damage an individual's personal and professional reputation. It could lead to legal consequences, loss of professional licences, difficulty in obtaining employment or business partnerships, and could also impact personal relationships and trust.

4. What are the consequences of ATO crypto tax evasion for businesses?

ATO crypto tax evasion for businesses can result in significant financial penalties, potential criminal charges against business leaders, loss of business licences, and reputational damage that could negatively impact future business opportunities and stakeholder relationships.

5. How can businesses protect themselves from potential tax evasion allegations?

Maintaining thorough and accurate financial records, ensuring they comply with all tax obligations, seeking professional advice for complex tax matters, implementing strong internal controls and auditing processes, and staying updated with changes in tax laws and regulations.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Thailand Targets Overseas Crypto Trading with this New Policy

Thailand unveils a new tax policy targeting overseas crypto trading income, aiming to improve its economy and fund stimulus measures.

Thailand, a country recognized for its forward-thinking approach to cryptocurrencies, has introduced a fresh tax regulation focusing on the foreign earnings of crypto traders. This initiative is part of the government's larger plan to finance its economic stimulus efforts, including a countrywide airdrop program.

Under Section 48 of the Revenue Code, individuals residing in Thailand for more than 180 days per year and earning income from work or assets abroad will be liable for personal income tax.

Starting January 1, 2024, authorities will have the authority to tax individuals' foreign income for the year 2025.

A Closer Look at the New Tax Policy

As per a report from the Bangkok Post on September 19, the Thai Revenue Department is focusing on overseas income, particularly honing in on cryptocurrency traders.

Under the new rule, individuals earning income from foreign sources, whether from work or assets, will now be liable for personal income tax. This applies to both Thai citizens and foreign residents spending more than 180 days annually in Thailand.

Previously, only foreign income transferred to Thailand within the same year was taxed. However, the new regulation closes this gap. Now, individuals must report all income earned abroad, regardless of whether they plan to use it locally.

It's essential to pay tax on any income earned abroad, regardless of its source or when it was earned.

Legal experts suggest this policy targets specific groups, including residents trading in foreign stock markets via foreign brokers, and notably, cryptocurrency traders.

A source from the Finance Ministry explained to the Bangkok Post, "The aim of taxation is to ensure fairness. The government is seeking new revenue sources for economic stimulus, and this is one approach."

Historical Context: Thailand and Crypto Taxation

Thailand has been active in regulating crypto activities. In January 2022, the government introduced a 15% capital gains tax on profits made from cryptocurrency trading.

Then, in March 2022, there was news that crypto traders were exempt from the 7% VAT on authorized exchanges.

Moreover, investors who pledged to support crypto startups in Thailand for at least two years were eligible for tax exemptions lasting up to ten years.

The Broader Picture

The Thai government's updated tax rules on foreign income aim to strengthen the economy, affecting various groups, including cryptocurrency traders.

This new policy has two main goals: to ensure fair tax contributions from everyone and to generate extra revenue to support economic growth initiatives.

Thailand's recent focus on overseas crypto trading income reflects the increasing importance of digital currencies globally. As the government strives to encourage innovation while maintaining fiscal responsibility, it'll be intriguing to see how these regulations shape the country's crypto scene in the years ahead.

Ready to simplify your crypto tax journey? Sign up for Kryptos and start for free.

FAQs

1. What is Thailand's new tax policy regarding crypto?

Thailand is targeting the foreign income of crypto traders with a new tax policy to fund its economic stimulus measures.

2. Who will be affected by this new tax regulation?

Both Thais and foreign nationals residing in Thailand for more than 180 days annually will be subject to this tax on overseas income.

3. Was foreign income previously taxed in Thailand?

Only foreign income remitted to Thailand within the year it was earned was previously taxed.

4. Has Thailand imposed any other crypto-related taxes before?

Yes, in January 2022, a 15% capital gains tax was imposed on crypto trading profits.

5. Why is the Thai government implementing this new tax policy?

The aim is to ensure equitable tax contributions and generate additional revenue to support economic stimulus measures.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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EU Council Adopts DAC8 Directive to Boost Crypto Tax Reporting

EU Council adopts DAC8 Directive and here’s what it means for tax reporting in crypto.

In a significant move, the Council of the European Union has adopted the DAC8 directive, marking an important moment in the regulation of crypto-asset transactions and tax rulings for high-net-worth individuals. 

This development highlights the EU's commitment to enhancing administrative cooperation among national tax authorities, ensuring transparency, and addressing the challenges posed by the digital economy.

The Genesis of DAC8

The journey to the adoption of DAC8 traces its roots back to December 7, 2021, when the Council expressed its anticipation for a legislative proposal addressing crypto-assets and tax rulings for affluent individuals. 

A year later, the European Commission proposed an amendment to Directive 2011/16/EU, birthing DAC8. 

This directive aligns with the global standards set by the OECD and G20, aiming to tackle the challenges of economic digitalization.

Key Provisions of DAC8

DAC8 introduces mandatory automatic information exchange between tax authorities, facilitated by reporting from crypto-asset service providers. 

This initiative aims to mitigate the risks of tax evasion, tax avoidance, and fraud. The directive covers a broad spectrum of crypto-assets, including those issued in a decentralized manner, stablecoins, e-money tokens, and certain non-fungible tokens (NFTs).

Global Alignment

The EU Council's move aligns with the standards set by international organizations like the OECD and G20. 

These bodies have been instrumental in addressing the complexities of a highly digitized economy, especially concerning fair taxation practices across borders. 

The DAC8 directive is a testament to the EU's commitment to leading the charge against the economic challenges posed by 21st-century technologies.

EU Council’s Adoption of DAC8

On October 17, 2023, the Council officially adopted the directive, amending EU rules on administrative cooperation in taxation. 

The amendments focus on the reporting and automatic exchange of information on revenues from crypto-asset transactions and advance tax rulings for the wealthiest individuals. 

The directive aims to strengthen the legislative framework, enlarge the scope for registration and reporting obligations, and enhance the overall administrative cooperation of tax administrations.

Countdown to Enforcement: What Comes Next?

The directive was adopted unanimously by member states in the Council and is slated for publication in the Official Journal. 

Its enforcement will commence on the twentieth-day post-publication, marking a new era of enhanced cooperation, transparency, and accountability in the realm of crypto-asset transactions and taxation.

Conclusion

The adoption of the DAC8 directive is a significant milestone in the EU's journey to enforce transparency, accountability, and fairness in the rapidly evolving world of crypto-assets. 

By ensuring that everyone pays their fair share of taxes, regardless of the form money takes in today’s world, the EU is not only keeping pace with but also leading the charge against the economic challenges brought forth by 21st-century technologies. 

The directive’s implementation will be keenly observed by stakeholders, as it promises to shape the future of crypto-asset transactions and taxation in the EU and beyond.

FAQs

1. What is the DAC8 Directive?

The DAC8 Directive is a regulation adopted by the Council of the European Union to enhance the transparency and reporting of crypto-asset transactions and tax rulings for high-net-worth individuals. It introduces mandatory automatic information exchange between tax authorities, facilitated by reports from crypto-asset service providers, to combat tax evasion, avoidance, and fraud.

2. What impact will the DAC8 Directive have on crypto-asset transactions and taxation?

The DAC8 Directive aims to ensure that everyone pays their fair share of taxes, regardless of the form money takes in today’s digital world. It will enforce transparency, accountability, and fairness in the rapidly evolving world of crypto-assets. The implementation of this directive is expected to shape the future of crypto-asset transactions and taxation not only in the EU but globally, as it sets a precedent for other nations to follow.

3. What types of crypto-assets are covered under the DAC8 Directive?

The DAC8 Directive covers a wide range of crypto-assets, including those issued in a decentralized manner, stablecoins, e-money tokens, and certain non-fungible tokens (NFTs). This comprehensive approach ensures that various forms of digital assets are included, promoting transparency and fairness in taxation.

4. How will the DAC8 Directive affect high-net-worth individuals?

High-net-worth individuals will be impacted by enhanced reporting and transparency requirements under the DAC8 Directive. The directive facilitates the automatic exchange of information on revenues from crypto-asset transactions and advance tax rulings among EU member states' tax authorities.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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IRS Announces Tax Bracket Adjustments for 2024: What You Need to Know

Know the latest IRS tax inflation adjustments for 2024. Discover the new standard deductions, tax brackets, AMT changes, and more in our guide.

The Internal Revenue Service (IRS) has recently announced a series of inflation adjustments for the tax year 2024. These changes, which are detailed in Revenue Procedure 2023-34, are set to impact more than 60 tax provisions, including tax rate schedules and other tax changes. 

This article aims to provide a comprehensive overview of these adjustments, ensuring that taxpayers are well-informed and prepared for the upcoming tax year.

Key Changes for 2024

Here are the 5 key changes that the IRS have introduced for the year 2024:

1. Standard Deduction Increases

  • For married couples filing jointly, the standard deduction will rise to $29,200, up by $1,500 from 2023.
  • Single taxpayers and married individuals filing separately will see their standard deduction increase to $14,600, a $750 rise.
  • Heads of households will have a standard deduction of $21,900, up by $1,100.

2. Marginal Tax Rates

  • The top tax rate remains at 37% for single taxpayers with incomes over $609,350 and $731,200 for married couples filing jointly.
  • Other rates are adjusted accordingly, with the lowest rate being 10% for single individuals earning $11,600 or less, and $23,200 for married couples filing jointly.

3. Alternative Minimum Tax (AMT)

The AMT exemption amount is $85,700, phasing out at $609,350 ($133,300 for married couples filing jointly, phasing out at $1,218,700).

4. Earned Income Tax Credit (EITC)

The maximum EITC amount is $7,830 for taxpayers with three or more qualifying children, up from $7,430 in 2023.

5. Other Notable Adjustments

  • The monthly limit for qualified transportation fringe benefits and parking rises to $315.
  • Employee salary reductions for contributions to health flexible spending arrangements increase to $3,200.
  • The foreign-earned income exclusion is $126,500, up from $120,000.
  • The basic exclusion amount for estates of decedents who die during 2024 is $13,610,000.
  • The annual exclusion for gifts is $18,000, up from $17,000.

What are the Unchanged Items?

The personal exemption remains at 0, continuing the trend set by the Tax Cuts and Jobs Act.

No limitation on itemized deductions, as per the same Act. The Lifetime Learning Credit phase-out thresholds remain unchanged.

Conclusion

The IRS's adjustments for the tax year 2024 reflect changes in the economy and are designed to help taxpayers navigate their financial responsibilities effectively.

Individuals and businesses must understand these changes to plan their finances and tax strategies accordingly. Consulting with a tax professional is recommended for personalized advice and guidance.

Want to calculate crypto taxes in compliance with IRS laws? Sign Up on Kryptos Now for free.

FAQs

1. What are the new standard deduction amounts for 2024?

For 2024, the standard deduction is $29,200 for married couples filing jointly, $14,600 for single taxpayers and married individuals filing separately, and $21,900 for heads of households.

2. How have the tax brackets changed for the tax year 2024?

The top tax rate remains at 37% for incomes over $609,350 for single taxpayers and $731,200 for married couples filing jointly. Other tax brackets have also been adjusted accordingly.

3. What is the maximum Earned Income Tax Credit (EITC) for 2024?

The maximum EITC for 2024 is $7,830 for taxpayers with three or more qualifying children, an increase from $7,430 in 2023.

4. Are there any changes to the Alternative Minimum Tax (AMT) exemption for 2024?

Yes, the AMT exemption amount for 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly, phasing out at $1,218,700).

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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South Korea Focuses on OTC Crypto Regulations Amidst $4B Illegal Trades

Explore South Korea's stance on OTC crypto trading regulations, the implications of the Special Financial Information Act, and how tools like Kryptos can help.

South Korea, a nation known for its technological advancements, is now turning its regulatory focus towards Over-The-Counter (OTC) cryptocurrency trading. This move comes amidst rising concerns over illegal trades amounting to approximately $4 billion. 

The country's financial regulators are keen on scrutinizing the OTC crypto market, which operates outside the purview of official recognition and regulation.

The OTC Crypto Market

The term "OTC crypto market" refers to exchanges that are not officially recognized by the government. These platforms include all transactions that occur outside regulated platforms, such as peer-to-peer (P2P) exchanges. 

Upbit, the largest regulated crypto platform in South Korea, supports approximately 172 cryptocurrencies. In contrast, OTC platforms offer around 700 different cryptocurrencies.

The $4 Billion Concern

Illegal foreign exchange transactions using digital currencies were estimated to be around $4 billion last year, according to the Korea Customs Service. There have been instances where OTC platforms were used to convert digital assets into Korean won illicitly, leading to several arrests and indictments.

One such instance happened last February when the International Crimes Investigation Department of the Incheon District Prosecutors' Office arrested and indicted three people on charges of violating the Specific Financial Information Act and the Foreign Exchange Transactions Act. 

As per the report, “They are suspected of engaging in illegal foreign exchange transactions between October 2021 and October of last year by purchasing 94 billion won worth of virtual currency from overseas OTC at the request of Libyans and then sending it to Korea to be converted into cash.”

South Korea currently lacks specific regulations to govern OTC trading directly. As per Article 10 of the Special Financial Information Act, domestic digital asset enterprises are prohibited from conducting transactions via OTC crypto companies. However, regular investors won't face penalties for unlawful foreign exchange activities unless they breach the Foreign Exchange Transaction Law.

The Regulatory Spotlight

According to a report released recently, South Korean regulators are increasingly concerned about the use of OTC platforms for criminal activities. Deputy Chief Prosecutor Ki No-Seong and Park Min-woo of the Financial Services Commission (FSC) recently attended a session on "Criminal Legal Issues Related to Virtual Assets." 

The session specifically focused on the unregulated OTC crypto market, highlighting the need for regulation due to money laundering concerns.

As Ja-seon Ye, a lawyer at Gwangya Law Firm, said, "In order to launder virtual currency, you must go through illegal virtual currency OTC. From the perspective of investigative agencies, an environment that can actively investigate illegal virtual currency OTC must be established to accurately identify virtual currency flows.”

The Crypto Tax Angle

The issue of illegal trade also brings up the topic of cryptocurrency taxation. South Korea has stringent crypto regulations and has implemented several laws to tackle crypto-related crimes. 

The country is becoming more proactive in its regulatory approach, especially in the wake of recent events like the collapse of the Terra cryptocurrency. Taxing crypto transactions could be another step in ensuring that the market operates within the boundaries of the law.

Crypto tax software like Kryptos can be invaluable, offering tools to assist investors in easily calculating their crypto-related taxes and staying compliant. 

Conclusion

South Korea's focus on regulating the OTC crypto market is a significant move in the broader context of cryptocurrency regulation. With illegal trades reaching alarming figures, the need for a structured regulatory framework has never been more urgent. 

As the country continues to evolve its policies, the global crypto community will be keenly watching the developments, as they could set precedents for other nations to follow.

FAQs

1. What is OTC crypto trading?

OTC (Over-The-Counter) crypto trading refers to transactions that occur directly between parties, outside of traditional exchanges. It's often used for large-volume trades.

2. Why doesn't South Korea have specific regulations for OTC crypto trading?

While South Korea has been proactive in regulating the broader crypto market, it currently lacks direct regulations for OTC trading. The country is still assessing the best approach to govern this segment of the market.

3. What does Article 10 of the Special Financial Information Act state?

Article 10 prohibits domestic digital asset enterprises from conducting transactions via OTC crypto companies, ensuring that official channels are used for such trades.

4. Can regular investors in South Korea be penalized for unlawful foreign exchange activities?

Yes, but only if they violate the Foreign Exchange Transaction Law. Otherwise, they won't face penalties specifically for OTC crypto trades.

5. How can Kryptos help crypto investors in South Korea?

Kryptos offers tools that assist investors in calculating their crypto-related taxes accurately, ensuring compliance with tax regulations, and simplifying the often complex process of crypto tax reporting.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Navigating DeFi Taxes in the UK: A Comprehensive Guide for 2024

Have you ever thought about how your DeFi activities might affect your taxes? Well, chances are you have!

Have you ever thought about how your DeFi activities might affect your taxes? Well, chances are you have!

Understanding the tax implications of your decentralized finance transactions is crucial as the DeFi space keeps growing. The HMRC recently released guidance on DeFi taxation in the UK, shedding light on whether your crypto ventures are subject to Capital Gains Tax or Income Tax.

In this article, we'll simplify the complexities of DeFi taxation, explain the 'nature of the transaction,' and explore the key factors that determine how your DeFi profits are taxed. Whether you're new to DeFi or a seasoned user, this guide will help you navigate the ever-changing tax rules in the UK's crypto world.

What is DeFi? 

Decentralized Finance (DeFi) brings together cryptocurrencies, blockchain tech, and smart contracts to offer financial services without borders. It covers things like trading, lending, borrowing, and yield farming. Dapps (Decentralized Apps) and DEXs (Decentralized Exchanges) are the backbone of DeFi. They provide financial services to anyone, thanks to smart contracts that create a trustworthy environment.

What Exactly Are Smart Contracts?

Smart contracts are like digital agreements that automatically carry out specific actions once specific conditions are fulfilled. The cool part about them is they work on their own without needing a middleman. This creates a trustworthy setup that forms the foundation for many DeFi services, cutting out the need for intermediaries.

How is DeFi taxed in the UK?

HMRC has provided clear guidelines on how cryptocurrencies, including DeFi assets, are taxed. Understanding the distinctions among various DeFi activities is crucial because they attract different tax treatments. 

Here's a breakdown of how DeFi activities are taxed in the UK:

1. Crypto Capital Gains Tax:

When you sell digital assets, including those acquired through DeFi ventures, in the UK, you may be subject to Capital Gains Tax (CGT) on the profits. The CGT rate depends on your income level, with a tax-free allowance of £6,000 for the 2023/2024 tax year.

2. Crypto Income Tax:

Earning income from DeFi activities like staking, mining, and yield farming in the UK may trigger income tax obligations. It's important to accurately report these earnings to HMRC to comply with tax laws.

3. DeFi Lending and Borrowing Tax:

The tax consequences in the UK revolve around ownership transfers, particularly with DeFi assets. If ownership changes hands, it's considered a taxable event under Capital Gains Tax (CGT). Additionally, any interest earned from DeFi activities is subject to Income Tax.

4. Airdrop Tax:

Airdrops received in exchange for services are subject to Income Tax, Capital Gains Tax (CGT) may also apply if you sell or exchange the airdropped assets.

5. Yield Farming Tax:

Income generated from yield farming in the UK is treated as taxable income under Income Tax regulations. This includes any new tokens obtained from assets deposited in yield farming activities on DeFi platforms.

How are DeFi transactions taxed?

1. Decentralized Exchange (DEX) Trades 

Trading on decentralized exchanges in the UK comes with tax responsibilities. Specifically, swapping one cryptocurrency for another is considered a taxable event, meaning it's subject to Capital Gains Tax.

2. Staking

Income earned through staking is taxable under Income Tax regulations. Additionally, if you swap or sell the tokens you've earned, they become subject to Capital Gains Tax.

3. Liquidity Mining

When you add or remove liquidity pool (LP) tokens, any tokens received in exchange for providing assets may be subject to Capital Gains Tax. LP tokens obtained while holding a position are taxed as income.

4. Flashloans, Play-to-Earn, and Gas Fees

Profits from activities like flashloans and play-to-earn, as well as expenses such as gas fees, may be subject to either Capital Gains Tax or Income Tax, depending on the specific transaction.

Special Cases in DeFi Taxation:

1. How is Crypto Margin Trading and other Derivatives Taxed:

All gains made through these methods are subject to Capital Gains Tax (CGT). However, for a clearer understanding, it's advisable to consult with a knowledgeable tax advisor.

2. Are wrapped tokens taxed?

Wrapping tokens involves trading one cryptocurrency for another, making it subject to Capital Gains Tax (CGT). The taxation of crypto bridges can vary, so it's best to seek advice from professionals in the field.

Conclusion

UK DeFi crypto taxes in 2023 requires careful attention to different activities and their tax effects. It's important to stay updated, keep detailed records, and consult cryptocurrency tax specialists to comply with HMRC rules. With DeFi constantly evolving, being proactive about taxes will help UK residents confidently navigate DeFi transactions.

FAQs

1. What is DeFi, and how is it different from traditional finance?

DeFi, short for Decentralized Finance, uses cryptocurrencies, blockchain tech, and smart contracts to offer financial services without banks or other traditional middlemen. Unlike regular finance, DeFi runs on decentralized networks, providing global access to services like lending, borrowing, trading, and yield farming.

2. How are DeFi activities taxed in the UK?

In the UK, DeFi activities are subject to different taxes, including Capital Gains Tax (CGT) for profits from selling digital assets, and Income Tax for earnings from staking, mining, and yield farming. Taxation varies based on the activity and transaction type, whether it's trading, income, or another taxable event.

3. What is Capital Gains Tax (CGT) and how does it apply to DeFi?

CGT is a tax on the profit from selling assets, including cryptocurrencies acquired through DeFi. For DeFi, CGT applies when selling or swapping digital assets. The tax rate depends on income, with a tax-free allowance for capital gains, which was £6,000 for the 2023/2024 tax year.

4. How are airdrops and yield farming taxed in the UK?

Airdrops are treated as income and are subject to Income Tax. If you sell or swap airdropped tokens, Capital Gains Tax may also apply. Returns from yield farming are seen as income and are subject to Income Tax, including new tokens earned from deposited assets.

5. Are gas fees, flashloans, and play-to-earn activities taxable?

Yes, Ethereum gas fees are considered part of the cost basis of acquired assets or as an advertising cost for disposal transactions. Profits from flashloans, play-to-earn activities, and similar activities are subject to either Capital Gains Tax or Income Tax, depending on the specific transaction.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Crypto "Priority" for the ATO This Tax Season

Discover the ATO's crypto priority this tax season. Understand the guidelines for crypto taxation in Australia to meet your obligations for accurate reporting.

The Australian Taxation Office (ATO) has recognized the significant growth and popularity of cryptocurrencies in recent years. As a result, they have placed a particular emphasis on ensuring that taxpayers properly understand and comply with their tax obligations related to crypto assets during the tax season. 

With the increasing number of individuals and businesses engaging in cryptocurrency activities, it has become crucial to address the tax implications associated with these digital assets.

Understanding and complying with crypto taxation is essential for several reasons: firstly, it ensures that taxpayers meet legal obligations and avoid potential penalties and fines. Secondly, it promotes transparency and integrity in the taxation system, allowing the ATO to effectively monitor and collect taxes on crypto transactions. 

To achieve this feat, ATO has defined certain areas of focus to ensure smooth crypto taxation. In this article, we highlight the top priorities for ATO that you must know as a taxpayer.

How Does the ATO Treat Crypto Taxes?

The ATO treats cryptocurrencies as assets for tax purposes, and the same principles that apply to other investments and assets generally apply to cryptocurrencies. 

This means that any gains or losses resulting from the disposal or exchange of cryptocurrencies may be subject to taxation.

When individuals or businesses hold cryptocurrencies as long-term investments, any capital gains realized upon their sale or disposal may be subject to capital gains tax. 

On the other hand, if cryptocurrencies are held as trading stock for short-term trading purposes, the profits may be considered ordinary income and subject to income tax.

Tax Treatment of Different Crypto Activities

The ATO provides specific guidance on the tax treatment of various crypto activities. For instance, cryptocurrency trading is generally subject to capital gains tax if the intention is to make a profit. 

Similarly, mining activities may be subject to income tax based on the value of the coins mined. Staking, where individuals earn additional coins by holding and participating in a blockchain network, may also have tax implications, particularly if the rewards are immediately accessible and can be sold or traded.

The ATO has also emphasised that taxpayers should report their crypto activities even if they believe they are only involved in small-scale or personal use transactions.

Also read: What’s New in The Australian Taxation for the 2023 Financial Year

Key Areas of Focus for the ATO

Here are the top 3 priorities for ATO when it comes to dealing with crypto taxation.

Identifying and Targeting Crypto Tax Evasion and Non-Compliance

The Australian Taxation Office (ATO) has recognized the need to tackle tax evasion and non-compliance in the crypto space. As cryptocurrencies offer a certain level of anonymity, some individuals may be tempted to underreport or hide their crypto-related income and transactions. 

To address this issue, the ATO has been actively working on identifying and targeting individuals or businesses that may be evading their tax obligations.

The ATO employs various methods to detect potential tax evasion. This includes data matching and analysis, where they compare information provided by taxpayers with data obtained from cryptocurrency exchanges and other sources. 

By cross-referencing transaction details, the ATO can identify inconsistencies or discrepancies, enabling them to focus on taxpayers who may be underreporting their crypto activities.

Data Matching and Cross-Referencing of Crypto Transactions

Data matching plays a crucial role in the ATO's efforts to ensure tax compliance in the crypto space. 

They have established data-sharing agreements with cryptocurrency exchanges and other relevant entities to obtain transaction data of Australian taxpayers. 

This data is then cross-referenced with the information provided in tax returns to identify any discrepancies.

For example, if an individual fails to report income from crypto trading or investments, the ATO can compare the data obtained from exchanges to uncover any undisclosed or unreported transactions. 

This allows the ATO to take appropriate action, such as initiating audits or investigations, to ensure that taxpayers meet their tax obligations.

Education and Outreach Initiatives to Improve Taxpayer Understanding

The ATO recognizes that many taxpayers may not fully understand their tax obligations when it comes to cryptocurrencies. To improve this situation, they have implemented education and outreach initiatives to create awareness and understanding of crypto tax requirements among taxpayers.

The ATO provides comprehensive guidance on their website, including detailed information on how to report crypto-related income, calculate capital gains or losses, and comply with tax obligations. 

They also conduct information sessions, webinars, and workshops to educate taxpayers about their crypto tax responsibilities.

By enhancing taxpayer education, the ATO aims to reduce unintentional non-compliance and foster a culture of voluntary compliance. They believe that by providing clear and accessible information, taxpayers will be better equipped to fulfil their crypto tax obligations accurately.

Consequences of Non-Compliance with Crypto Tax Obligations

Failing to comply with crypto tax obligations can lead to serious consequences for taxpayers. The ATO has the authority to impose penalties, including fines and interest charges, on individuals or businesses found to be non-compliant. 

These penalties can vary depending on the severity of the non-compliance and can accumulate over time, resulting in significant financial burdens.

Moreover, non-compliance with tax obligations may also trigger ATO audits or investigations, which can be time-consuming, stressful, and costly for taxpayers. 

Audits involve a thorough examination of a taxpayer's financial records and transactions to determine if they have accurately reported their income and fulfilled their tax obligations. If discrepancies or intentional non-compliance are discovered, the ATO may take further legal action.

Benefits of Accurate And Timely Tax Reporting for Crypto Assets

Accurate and timely tax reporting of crypto assets offers several benefits for taxpayers. 

Firstly, it helps taxpayers fulfil their legal obligations, promoting a transparent and fair tax system. By reporting crypto income and gains, individuals and businesses contribute to the funding of public services and infrastructure that benefit society as a whole.

Secondly, accurate tax reporting allows taxpayers to demonstrate their compliance, reducing the risk of penalties and audits. By keeping detailed records of crypto transactions and accurately calculating capital gains or losses, taxpayers can provide evidence of their tax compliance if requested by the ATO.

Additionally, accurate tax reporting can provide peace of mind to taxpayers, knowing that they have fulfilled their obligations and minimized the risk of future complications or legal issues related to their crypto activities. It also helps taxpayers maintain their financial reputation and credibility, which can be crucial for future financial endeavours or business opportunities.

Key Considerations for Crypto Taxpayers in Australia

To ensure smooth tax filing for your crypto transactions, here are 6 things that you should consider.

Record-keeping and documentation requirements for crypto transactions

When it comes to crypto taxes, one of the key considerations for taxpayers is maintaining proper record-keeping and documentation for all crypto transactions. 

The Australian Taxation Office requires individuals to keep accurate records of their crypto activities, including buying, selling, exchanging, and transferring cryptocurrencies. 

This includes details such as the date and time of each transaction, the value in Australian dollars at the time of the transaction, the purpose of the transaction, and the parties involved. 

These records should be kept for at least five years and should be readily accessible in case of an audit or investigation by the ATO.

Understanding the calculation of capital gains and losses for crypto assets

Another important consideration for crypto taxpayers is understanding how to calculate capital gains and losses for their crypto assets. 

Capital gains tax (CGT) applies to the disposal of cryptocurrencies, where a gain is made if the proceeds from the sale exceed the cost base of the asset. 

The cost base includes the amount paid for the cryptocurrency, as well as any incidental costs associated with acquiring or disposing of it (e.g., transaction fees). 

On the other hand, a capital loss is incurred if the proceeds are less than the cost base. It's crucial to accurately calculate their capital gains or losses and report them in their tax returns.

Utilizing crypto tax software and tools for accurate reporting

With the increasing complexity of crypto tax, it is highly recommended that crypto taxpayers utilize crypto tax software and tools to ensure accurate reporting. These software solutions can help automate the calculation of capital gains and losses, track transactions across multiple exchanges and wallets, and generate comprehensive tax reports. 

Staying updated with ATO guidelines and announcements

As the ATO continues to refine its approach to crypto taxation, crypto taxpayers must stay updated with the latest guidelines and announcements. 

The ATO regularly releases guidance on various crypto tax-related matters, including the tax treatment of different activities, record-keeping requirements, and reporting obligations. By staying informed, you can adapt their practices accordingly and ensure compliance with the latest regulations.

Reviewing previous years' tax returns for any crypto-related omissions

For taxpayers who have been involved in crypto activities in previous years, it's advisable to review their tax returns for any potential omissions related to cryptocurrencies. 

It's not uncommon for individuals to overlook reporting their crypto transactions or misinterpret the tax requirements in previous years. By conducting a thorough review, you can identify any gaps or errors and take corrective measures, such as amending previous tax returns if necessary.

To get more details, refer to our Australian Crypto Tax Guide.

How Can Kryptos Help You With Australian Crypto Taxes?

Crypto tax software like Kryptos takes out the stress of staying up-to-date with all the latest ATO guidelines and allows you to calculate your crypto taxes accurately in just a few minutes.

Simply import your transactions from 5000+ DeFi protocols, 100+ wallets and exchanges, and supported NFTs.

The app updates all your tax liabilities in a single dashboard and allows you to save taxes while staying compliant with the ATO tax laws.

Streamline your Crypto Taxes with Kryptos -  Sign Up Now for FREE and generate your tax reports in just MINUTES!

FAQs

1. What does the ATO's focus on crypto "priority" mean for taxpayers?

The ATO's focus on crypto "priority" signifies their increased scrutiny and emphasis on ensuring tax compliance in the cryptocurrency space. Taxpayers who engage in cryptocurrency transactions need to be aware of their reporting obligations and ensure accurate and timely compliance to avoid penalties and potential audits.

2. What are the specific reporting obligations for cryptocurrency transactions?

Taxpayers who engage in cryptocurrency transactions are required to report their transactions for tax purposes. This includes the calculation and reporting of capital gains or losses when disposing of cryptocurrencies, such as selling, exchanging, or gifting them. It is important to maintain accurate records of all transactions, including dates, values, and details of counterparties involved.

3. How does the ATO collaborate with cryptocurrency exchanges and platforms?

The ATO collaborates with cryptocurrency exchanges and platforms to gather data and ensure tax compliance. Through data-matching programs, the ATO can cross-reference information provided by exchanges with taxpayers' tax returns, identifying any discrepancies. This collaboration creates transparency and helps the ATO identify individuals or businesses who may not be accurately reporting their cryptocurrency activities.

4. Are there any penalties for non-compliance with crypto tax obligations?

Yes, there are penalties for non-compliance with crypto tax obligations. If the ATO identifies non-compliance, taxpayers may face penalties ranging from fines to interest charges. The severity of the penalty depends on the circumstances and extent of the non-compliance. It is crucial to understand and meet crypto tax obligations to avoid such penalties.

5. What are the benefits of engaging a crypto tax professional?

Engaging a crypto tax professional can provide several benefits. These professionals have expertise in navigating the complex crypto tax regulations and can ensure accurate reporting and compliance. They can help taxpayers optimize their tax positions, identify potential deductions, and provide guidance on specific crypto tax issues.

6. How can taxpayers stay informed about the latest updates and guidance from the ATO?

Taxpayers can stay informed about the latest updates and guidance from the ATO by regularly checking the ATO website for publications, guidelines, and announcements related to cryptocurrency taxation. It is also advisable to consult with a crypto tax professional who stays updated with the latest developments and can provide tailored advice based on individual circumstances.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Simplifying Crypto Loans & Taxes with CoinRabbit and Kryptos

Easily manage crypto loans and taxes with CoinRabbit & Kryptos. Access liquidity, retain assets and simplify crypto tax filing.

While dealing with cryptocurrency, investors are not only tasked with handling the volatile markets but also effectively manage their tax liabilities. The process of cashing out crypto brings with it a set of challenges, intricacies, and obligations that can be both time-consuming and complex. 

This article dives into how you can enjoy your crypto assets while also dealing with crypto taxation with two possible solutions: CoinRabbit and Kryptos.

Cashing Out Crypto and the Tax Implications

When investors decide to cash out their crypto holdings, they are essentially converting their digital assets into fiat currency. This conversion is not just a simple transaction but is considered a taxable event by many tax authorities around the world.

The IRS treats all cryptocurrencies as capital assets, meaning investors owe capital gains taxes when sold at a profit.

  • Holding vs. Selling: Investors don’t owe taxes if merely holding crypto. However, any income derived from staking, lending, or selling incurs taxes.
  • Short-term vs. Long-term Gains: The duration for which the crypto is held determines the tax rate. Short-term gains (held for one year or less) are taxed as regular income, while long-term gains enjoy a preferential rate.
  • Mining and Staking: Earnings from mining or staking are considered regular taxable income. The entire value of the crypto on the day received is taxable.

Investors must maintain detailed records of all transactions to accurately report gains or losses. However, this process can quickly turn complex, given the high volume and frequency of transactions typical in the crypto space.

Investors often find themselves dedicating extensive hours to record-keeping, calculations, and form submissions. The need for precision and compliance amplifies the pressure, making the cashing out process a daunting task.

The Crypto Loan Advantage

This is where crypto loan platforms like CoinRabbit come into play. Instead of selling their crypto assets, investors can leverage them as collateral to obtain a loan. 

This approach offers a dual advantage – investors can access the liquidity they need without triggering a taxable event, and they retain ownership of their crypto assets, allowing them to benefit from potential appreciation in value.

In addition to the tax obligations, investors can also avoid the withdrawal fees imposed by crypto exchanges when cashing out.

Stay on Top of Taxes when You Cash Out Your Crypto

If  you do choose to cash out your crypto, the easiest way to manage your tax liabilities and maximize your tax savings is leveraging a reliable platform for cryptocurrency tax calculations, reporting, and portfolio management.

Why Choose Kryptos?

  • Support for 5000+ DeFi Protocols: Kryptos supports a vast array of DeFi protocols, making it a comprehensive solution for DeFi investors.
  • 200+ Exchanges, Wallets, and Blockchains: Kryptos integrates with over 200 platforms, allowing users to easily import all historical transactions.
  • DeFi and NFT Dashboards: Users can manage their diverse portfolio of DeFi and NFT investments from a single dashboard.
  • Generate Crypto Tax Reports: Kryptos offers free detailed tax reports, aiding in transparent and accurate tax filing.
  • Portfolio Management and Real-Time Alerts: Users can manage their crypto portfolio and receive real-time alerts to stay informed of their investments’ performance.

Wrapping Up

The crypto industry doesn’t have to be complex for investors. Platforms like CoinRabbit and Kryptos are transforming this space, offering simplified, efficient, and compliant solutions. 

As the crypto world continues to evolve, these platforms stand as allies for investors, turning challenges into opportunities and complexities into manageable tasks.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Brazil's New Decision on Cryptocurrency Taxation: A Pivotal Moment Globally?

Brazil takes a significant step in cryptocurrency regulation by introducing a tax on personal foreign investments in digital currencies.

In a significant development, Brazil's legislative body, the Chamber of Deputies, has given the green light to Bill 4173/23. 

This bill, originating from the Executive Branch, seeks to introduce a tax on personal foreign investments, encompassing Bitcoin and various other digital currencies. 

Currently pending the President's endorsement, this legislation has ignited a profound discussion regarding the legal aspects and potential consequences of such a tax in the rapidly advancing realm of cryptocurrencies.

What are the Implications of the Tax?

The legislation suggests a substantial tax rate, reaching up to 22.5%, targeting individuals who possess cryptocurrencies on international platforms like Coinbase, Binance, Bitget, and Gate.io, to name a few. 

This tax would also be applicable to the earnings, gains, and dividends from foreign-controlled entities and trusts, inclusive of cryptocurrency transactions. 

The introduction of this bill might have a considerable impact on Brazilian investors, who, akin to many globally, have seen potential and refuge in the predominantly unmonitored domain of cryptocurrencies.

The bill hasn't been without its detractors. ABCripto, the Cryptoeconomics Association of Brazil, has voiced its concerns, asserting that the proposed cryptocurrency tax in the country is not lawful. This has further intensified the ongoing discussion about the suitable legal and tax-related approach towards cryptocurrencies.

What’s in the Future?

Brazil's new taxation approach could potentially dissuade Brazilian traders from engaging with overseas cryptocurrency platforms, possibly resulting in a dip in trading activity and liquidity. 

Additionally, this move might inspire other nations to adopt similar measures, establishing a model for taxing cryptocurrencies.

The core challenge remains to find a middle ground that promotes innovation, safeguards investors, and upholds the sanctity of financial infrastructures. 

But with the continuous evolution of digital currencies, the legal and regulatory frameworks surrounding them are bound to transform as well.

Simplify Crypto Taxes with Kryptos

Crypto tax software like Kryptos takes out the stress of staying up-to-date with all the latest tax guidelines and allows you to calculate your crypto taxes accurately in just a few minutes.

Simply import your transactions from 5000+ DeFi protocols, 100+ wallets and exchanges, and support NFTs.

The app updates all your tax liabilities in a single dashboard and allows you to generate reports that comply with the latest tax laws.

Want to see how Kryptos can help simplify your crypto taxes? Sign Up Now for free.

FAQs

1. What is the main focus of Brazil's Bill 4173/23?

The bill, introduced by Brazil's Executive Branch and approved by the Chamber of Deputies, aims to tax personal foreign investments in digital currencies, including Bitcoin and other cryptocurrencies.

2. How might the new tax impact Brazilian cryptocurrency investors?

The proposed tax, which can reach up to 22.5%, targets individuals holding cryptocurrencies on international platforms. This could significantly influence Brazilian investors, potentially demotivating them from participating in foreign cryptocurrency exchanges and affecting trading volumes.

3. Why is the proposed cryptocurrency tax in Brazil considered controversial?

The Cryptoeconomics Association of Brazil, ABCripto, has raised concerns about the legality of the new tax. The introduction of this bill has intensified discussions about the appropriate legal and fiscal treatment of cryptocurrencies in the country.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Turkey's Cryptocurrency Regulatory Framework Expected by 2024

Turkey embarks on a transformative journey with plans to finalize cryptocurrency regulations by 2024.

Turkey is making significant strides in the cryptocurrency domain. And, the 2024 Turkish Presidential Annual Programme, unveiled on October 25, highlights the nation's ambition to finalize its cryptocurrency regulations by the close of 2024. 

Here’s everything you need to know about Turkey’s upcoming cryptocurrency regulatory framework.

What is The Article 400.5?

The comprehensive released document, spanning nearly 500 pages, includes Article 400.5, which sheds light on the plan to pinpoint cryptocurrency assets that might be eligible for relevant taxation. Furthermore, entities dealing with cryptocurrency assets, like exchanges, will soon be recognized with a clear legal status. 

While the document remains tight-lipped about specific impending constraints, its release is a clear indication of Turkey's resolve to oversee the burgeoning cryptocurrency market within its territory. 

By introducing a clear legal classification for cryptocurrency assets and emphasizing taxation, the Turkish government is signaling its intent to create transparency and responsibility in this evolving industry.

A Glimpse into the Past

A study conducted in 2022 revealed that Turkey secured the second spot globally, with 5.5% of its population showing curiosity about digital currencies. 

This interest was further amplified against the backdrop of the Turkish lira's inflation woes. In 2021 alone, the nation saw an elevenfold surge in cryptocurrency adoption. 

This growing affinity for digital currencies is largely attributed to waning confidence in conventional financial systems and an appetite for alternative investment avenues. 

Cryptocurrency platforms, such as Thodex, played a pivotal role in this trend by offering easy access and convenience, drawing more participants to the market. It's worth noting that Thodex faced its own set of challenges, with its former CEO, Faruk Fatih Özer, being handed a jail sentence spanning 11,196 years in September 2023 following the platform's abrupt downfall in 2021.

What’s in the Future?

Turkey's Central Bank wrapped up the initial testing phase of the digital lira, its own digital currency, in December 2022. 

Further trials are slated to continue until 2024. President Recep Tayyip Erdoğan has been a vocal supporter of the digital lira project, although a full-scale transition to a digital currency is still under consideration.

Simplify Crypto Taxes with Kryptos

Crypto tax software like Kryptos takes out the stress of staying up-to-date with all the latest tax guidelines and allows you to calculate your crypto taxes accurately in just a few minutes.

Simply import your transactions from 5000+ DeFi protocols, 100+ wallets and exchanges, and support NFTs.

The app updates all your tax liabilities in a single dashboard and allows you to save taxes while staying compliant with the latest tax laws.

Sign Up Now for FREE simplify your crypto taxes! 

FAQs

1. What is the significance of the 2024 Turkish Presidential Annual Programme in the context of cryptocurrency?

The 2024 Turkish Presidential Annual Programme, released on October 25, highlights Turkey's commitment to establish a comprehensive cryptocurrency regulatory framework by the end of 2024.

2. What insights does Article 400.5 of the document provide?

Article 400.5 delves into the research that will be undertaken to identify cryptocurrency assets eligible for taxation. It also indicates that entities like cryptocurrency exchanges will soon have a defined legal status in Turkey.

3. How has Turkey's relationship with cryptocurrency evolved over the years?

Turkey witnessed a significant surge in cryptocurrency interest and adoption in recent years. A 2022 study revealed that 5.5% of its population was curious about digital currencies. The nation also experienced an elevenfold increase in cryptocurrency usage in 2021, driven by factors like inflation of the Turkish lira and the rise of platforms like Thodex.

4. What are the future prospects for the digital lira, Turkey's own digital currency?

The Central Bank of Turkey completed the initial testing phase of the digital lira in December 2022. While further trials are expected to continue until 2024, President Recep Tayyip Erdoğan has shown strong support for the initiative, though a complete transition to the digital currency is still under deliberation.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Kraken to Disclose User Information to the IRS Following Court Order

Kraken, a prominent U.S. cryptocurrency exchange, is set to disclose select user data to the IRS following a court order.

‍In a significant development in the cryptocurrency sector, Kraken, a leading U.S. cryptocurrency exchange, has announced it will disclose specific user data who conducted transactions over $20,000 between 2016 and 2020 to the Internal Revenue Service (IRS) in November, 2023.

This decision comes in the wake of a prolonged legal battle over crypto tax reporting that began in May 2021.

Who will be Affected?

In its search for potential tax evaders, the IRS initially requested a wide range of Kraken's U.S. client records.

However, standing firm on its commitment to safeguard client privacy, Kraken resisted the sweeping demands, leading to an extended litigation process. 

While the exchange managed to limit the scope of the IRS's request, the court eventually mandated Kraken to furnish details and transaction records of users who had transacted over $20,000 in any single year spanning from 2016 to 2020.

What Details Need to be Shared?

As per the court's directive, Kraken is set to provide the IRS with user details, including names, birthdates, taxpayer IDs, addresses, phone numbers, email addresses, and transaction histories for the stipulated years. This move is slated for early November 2023.

What’s Next?

Kraken has urged its affected clients to liaise with their respective tax consultants to address any potential tax implications stemming from their cryptocurrency transactions during the specified years.

Manage Your Kraken Taxes with Kryptos

If you are using Kraken, you can leverage Kryptos to stay on top of your taxes – simply auto-sync all your transactions, analyze your portfolio and calculate your crypto taxes in minutes.

For a step-by-step guide to connect Kraken with Kryptos, check out our Kraken integration guide.

Ready to simplify your crypto taxes? Sign Up on Kryptos for free.

FAQs

1. Why is Kraken sharing user data with the IRS?

Kraken is complying with a court order that mandates the disclosure of specific user data to the IRS, stemming from a legal battle that began in May 2021.

2. Which users will be affected by this disclosure?

Users who have conducted transactions exceeding $20,000 in any single year from 2016 to 2020 will have their details shared with the IRS.

3. What kind of user information will Kraken provide to the IRS?

Kraken will share names, birthdates, taxpayer IDs, addresses, phone numbers, email addresses, and transaction histories for the specified years.

4. How can affected users address potential tax implications?

Kraken advises its impacted clients to consult with tax specialists to understand and address any potential tax liabilities related to their cryptocurrency transactions during the mentioned years.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Tax Implications of Falling Victim to a Crypto Scam: Will You Face Taxation On Losses?

Discover the potential tax consequences if you have been a victim of a cryptocurrency scam. Know your tax liability on your losses in such unfortunate situations.

Crypto scams are a prevalent problem in the digital currency space, causing significant financial losses for many individuals. Whether you've fallen victim to phishing attempts, rug pulls, or giveaway scams, the loss of funds raises important questions about tax implications. 

In this article, we delve into the subject of taxes and crypto scams, providing valuable insights into whether you can treat your lost coins as a capital loss and potentially offset it against any gains you may have.

What You Need to Know about Crypto Scams

Crypto scams are diverse and ever-present in the cryptocurrency market, making it crucial to understand their different forms. Some common types of crypto scams include phishing scams, giveaway scams, rug pulls, and dusting attacks.

Phishing scams, although not exclusive to the crypto industry, involve fraudsters impersonating legitimate entities, such as crypto exchanges, to deceive users into revealing their private keys and gaining access to their crypto wallet funds. Giveaway scams operate by offering enticing opportunities with promises of significant returns, such as airdrops, to persuade crypto investors to surrender their coins.

Rug pulls have gained prominence in the decentralized finance (DeFi) space. Scammers create DeFi protocols with unrealistically high yield returns, only to abandon the project and abscond with the funds invested by individuals. 

Similarly, such scams can occur in the centralized crypto market, where scammers launch new coins with exaggerated growth potential but disappear after collecting funds from investors.

Dusting attacks, although not new, are on the rise and require attention to avoid falling victim. In crypto, dust refers to small amounts of coins or tokens that are insufficient to cover transfer fees, rendering them untransferable. Malicious actors take advantage of this by conducting dusting attacks, where they send small amounts of crypto (dust) to various wallet addresses. By analyzing the dusted addresses, scammers can link them to specific individuals or companies, facilitating phishing attacks or extortion threats.

If you have been unfortunate enough to experience a crypto scam, you are not alone. However, expecting to write off the loss as a capital loss for tax purposes is not always straightforward. The complexities of crypto scams and tax implications make it essential to navigate the situation carefully.

Tax Implications of Crypto Scams: Do You Owe Taxes on Lost Coins?

Fortunately, when it comes to losing your crypto due to theft, it is not considered a disposal. This means you are not obligated to pay capital gains tax on any gains resulting from the difference in value between the day the coins were sold and the day they were acquired. 

While this approach may seem obvious and fair, crypto investors are well aware that the IRS rarely overlooks opportunities to tax cryptocurrencies.

However, for victims of crypto hacks who have lost their assets completely, a more significant question arises: Can they claim a capital loss? 

Can You Claim Capital Losses on Stolen Coins?

No, you cannot claim crypto lost in a scam as a capital loss in many countries, including the US, because theft is not considered a disposal of a capital asset and is therefore not subject to Capital Gains Tax. 

As a result, you cannot write off stolen crypto as a capital loss, and there will be no realized gain or loss recognized for tax purposes.

However, it's important to note that tax treatment may vary depending on your country of residence. Different tax offices around the world have different rules regarding the ability to claim crypto scams as a capital loss. 

It is advisable to consult the specific guidelines provided by your local tax authority to understand the tax implications of crypto scams in your jurisdiction.

IRS and Crypto Scams

The IRS has a clear stance on crypto capital losses. According to their guidelines, theft losses of crypto cannot be claimed as a capital loss. However, before 2017, it was possible to claim theft losses of crypto as a capital loss. 

The Tax Cuts and Jobs Act of 2017 suspended the deduction of personal casualty and theft losses, except in federally declared disaster areas. As a result, casualty and theft losses of crypto are no longer considered capital losses and are not tax deductible.

It's worth noting that many of the individual tax reforms included in the 2017 bill are set to expire in 2025. This means that in the future, theft and casualty losses may once again be eligible for claiming as capital losses. 

However, it's important to stay updated on any changes in tax laws and consult with a tax professional for specific advice regarding your situation.

HMRC and Crypto Scams

HMRC (Her Majesty's Revenue and Customs) provides clear guidance on crypto capital losses, including cases involving stolen crypto through scams. According to HMRC, theft is not considered a type of disposal, such as a sale or trade. Therefore, you cannot claim stolen crypto as a capital loss to offset against your capital gains.

However, there is a potential opportunity for investors who have fallen victim to scams where the coins they purchased under pretenses become worthless. In such cases, it may be possible to make a "negligible value" claim. 

This claim allows individuals to treat the worthless assets as if they have been disposed of, potentially resulting in a capital loss that can be offset against capital gains.

ATO and Crypto Scams

The Australian Taxation Office (ATO) guides dealing with crypto scams and stolen crypto. In Australia, you can claim stolen crypto as a capital loss to offset your capital gains.

However, there is an important requirement: you must have sufficient evidence to prove that your crypto was stolen as a result of a scam. This evidence may include:

  • Dates indicating when you received the stolen assets and when the theft occurred.
  • The wallet address associated with the private key.
  • Documentation demonstrating the costs you incurred to acquire the stolen crypto.
  • Evidence of the amount of crypto held in the relevant wallet before the theft.
  • Proof of ownership of the wallet or possession of the hardware that stores the wallet.
  • Documentation of transactions you make to the wallet, such as transfers from an exchange.

It's crucial to gather and maintain comprehensive records to support your claim for a capital loss due to stolen crypto. By providing the necessary evidence, you can obtain tax relief.

It's important to note that the possibility of claiming a capital loss applies to crypto investors in the traditional sense. However, if the ATO categorizes the coin as a personal use asset — an asset primarily used for personal consumption or purchasing items for personal use — any crypto losses will be disregarded for tax purposes.

Always consult with a tax professional or refer to the ATO's official guidelines for specific advice tailored to your situation.

CRA and Crypto Scams

The Canada Revenue Agency (CRA) does not currently have specific guidelines addressing crypto scams and whether stolen crypto can be claimed as a capital loss. However, it is worth noting that the CRA allows other stolen capital assets to be claimed as a capital loss, which suggests that they may apply similar rules to stolen crypto.

In Canada, the adjusted cost basis method is used for calculating capital gains and losses. When it comes to stolen crypto, you can only claim the original investment amount as a capital loss, not any unrealized gains. 

For instance, if you purchased ETH for $1,000 and lost it in a crypto scam when the value of ETH was $4,000, you would only be eligible to claim a capital loss of $1,000 to offset against your capital gains.

Simplify Crypto Taxes with Kryptos

Looking to file your cryptocurrency taxes? Cryptocurrency tax software like Kryptos can help.

With 100+ wallets and exchanges and 5000+ DeFi protocols supported on the platform, you can easily add all your crypto transactions and generate pre-filled tax reports that comply with your country’s tax laws.

Want to explore the platform? Sign Up For FREE.

FAQs

1. Can I recover my scammed crypto?

Recovering scammed cryptocurrency can be extremely challenging, and in many cases, it might be impossible. Once a transaction is confirmed on the blockchain, it cannot be reversed. If you fall victim to a scam, you should report the incident to local law enforcement and any relevant regulatory agencies. They may be able to take legal action, but recovering the funds is often unlikely.

2. Is crypto scamming illegal?

Yes, crypto scamming is illegal. Engaging in fraudulent activities, misrepresentation, or deception to obtain cryptocurrency from someone else is a criminal act in most jurisdictions. Victims should report scams to local law enforcement and regulatory agencies, providing as much detail as possible to aid in any investigation.

3. Is crypto taxable if someone sends me it?

Generally, receiving cryptocurrency as a gift, payment for goods or services, or even as a result of a scam could be subject to taxation. The exact tax treatment depends on the jurisdiction and the specific circumstances of the transaction. Consulting with a tax professional or referring to the tax guidelines in your country will provide clarity on your tax obligations.

4. Can I claim a tax deduction on a crypto scam?

In some jurisdictions, losses from fraudulent activities, including crypto scams, may be deductible on your tax return. The nature and extent of the deduction can vary widely based on the tax laws in your country. It's essential to maintain detailed records of the incident and consult with a tax professional to understand how to properly claim such a loss on your taxes.

5. Is stolen crypto taxable?

Stolen cryptocurrency typically falls into a complex area of tax law. In some jurisdictions, you may be able to claim a theft loss deduction, while in others, the loss might not be deductible at all. The tax treatment of stolen crypto can depend on various factors, such as the nature of the theft, the laws in your jurisdiction, and your specific situation.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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South Korea Embraces OECD's Cryptocurrency Tax Compliance Initiative

Explore South Korea's strategic move to join the OECD's Crypto-Asset Reporting Framework (CARF) to enhance tax compliance in the cryptocurrency sector.

In a significant move towards global tax transparency, South Korea has announced its participation in the OECD's Crypto-Asset Reporting Framework (CARF). 

This global initiative, supported by 48 countries, is designed to ensure tax compliance and prevent tax evasion in the burgeoning cryptocurrency market.

What is the CARF?

The CARF, set for implementation by 2027, represents a concerted effort by participating nations to align their internal legal frameworks and establish necessary agreements for information exchange. 

This initiative is a response to the growing need for effective regulation in the cryptocurrency domain, ensuring that tax evasion is minimized.

Read Next: South Korea Crypto Tax Guide 2024

South Korea's Proactive Role in the CARF

South Korea's commitment to this initiative is a testament to its dedication to playing a pivotal role in the global financial landscape. 

The country plans to update its domestic laws and activate agreements in preparation for the 2027 timeline set by the OECD. 

This move is expected to significantly aid in the widespread adoption of the CARF.

Beyond Legislation: The Need for Cooperation

Experts, during a tax administration forum in Seoul, emphasized that South Korea's successful participation in the CARF requires more than legislative changes. 

It necessitates the development of a cooperative framework involving both cryptocurrency service providers and regulatory bodies. This approach is crucial for the smooth and effective implementation of the CARF in South Korea.

Wrapping Up

South Korea's involvement in the CARF marks a significant step in the global effort to bring more transparency and compliance to the cryptocurrency market. 

By aligning with international standards and fostering cooperation between various stakeholders, South Korea is positioning itself as a leader in the responsible management of digital assets.

Stay on Top of Crypto Taxes with Kryptos

Crypto tax software like Kryptos takes out the stress of staying up-to-date with all the latest tax guidelines and allows you to calculate your crypto taxes accurately in just a few minutes.

Simply import your transactions from 5000+ DeFi protocols, 100+ wallets and exchanges, and supported NFTs.

The app updates all your tax liabilities in a single dashboard and allows you to save taxes while staying compliant with the latest tax laws.

Want to see how Kryptos can help simplify your crypto taxes? Sign Up Now for free.

FAQs

1. What is the Crypto-Asset Reporting Framework (CARF)?

The Crypto-Asset Reporting Framework, developed by the Organization for Economic Co-operation and Development (OECD), is an international initiative aimed at promoting tax compliance and combating tax evasion in the cryptocurrency sector. It involves collaboration among various countries to establish a standardized approach for reporting and exchanging information related to crypto-asset transactions.

2. Why is South Korea participating in the CARF?

South Korea's participation in the CARF signifies its commitment to international efforts to enhance tax transparency and prevent tax evasion in the realm of digital currencies. By joining this initiative, South Korea aims to align its domestic laws with international standards and contribute to the global effort to regulate the cryptocurrency market.

3. What is the target year for the implementation of the CARF, and what does it entail?

The target year for the implementation of the CARF is 2027. By this year, participating countries, including South Korea, plan to have aligned their domestic laws and activated agreements for the exchange of information regarding crypto-asset transactions. This alignment is crucial for the effective and uniform application of the CARF across different jurisdictions.

4. What additional steps does South Korea need to take for the effective implementation of the CARF?

Beyond legislative amendments, South Korea needs to develop a cooperative system that involves both virtual asset service providers (VASPs) and regulatory authorities. This system is essential for ensuring a smooth and effective implementation of the CARF, facilitating the exchange of relevant information, and adhering to the proposed timeline.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Is Crypto Staking Taxable In The UK?: HMRC Guidelines

Wondering if crypto staking is taxable in the UK? Read our guide to uncover the tax implications and guidelines of crypto staking.

Cryptocurrency staking has gained significant popularity among investors seeking to actively participate in blockchain networks and earn potential rewards. 

However, the autonomous and real-time nature of your earnings and the fluctuating values of rewards can make tax calculations complex. 

In this article, we will explore how rewards from staking cryptocurrencies are taxed, particularly in countries like the UK. 

Read our comprehensive guide for all things related to UK Crypto Tax!

What is Crypto Staking?

Staking crypto is where cryptocurrency holders earn passive income by actively supporting blockchain networks. It's an alternative to traditional mining, often linked to proof-of-stake (PoS) or delegated proof-of-stake (DPoS) blockchains.

Participants, called validators or "stakers," lock up their crypto to validate transactions and propose blocks. 

They maintain blockchain integrity, prevent wrongdoing, and, in return, receive tokens as a reward. 

Staking signifies the validator's commitment to network security, and the more they stake, the higher their earning potential. It lets crypto holders earn while helping blockchain networks function, making it attractive to many in the crypto community.

Taxation of Staking Rewards in the UK

Staking rewards are taxed in the UK based on two critical factors-

  • The classification of the reward as income or capital
  • The nature of the staking activity

If staking rewards are treated as income, they are subject to income tax, ranging from 20% to 45%. 

On the other hand, if they are deemed capital gains, they are subject to capital gains tax, with tax rates between 20 to 40% depending on the amount of gains.

Factors Influencing Tax Treatment

The HMRC (Her Majesty's Revenue and Customs) offers guidelines to differentiate between crypto income tax and crypto capital gains tax from staking activities. 

Factors such as the type of return, payment frequency, staking period, and the intention of the staker are considered when stipulating the tax implications. 

For instance, if one receives staking rewards in exchange for a service to a DeFi platform, they are more likely to be treated as taxable income. 

Taxation Events Related to Staking

Staking activities can trigger multiple taxable events, including:

  • Making tokens available for staking: A change in ownership, where the platform can utilize or sell the tokens, triggers a Capital Gains Tax event. In such cases, the difference between the initial value of the new tokens and the average acquisition cost of the disposed tokens must be calculated to ascertain any capital gain or loss.
  • Withdrawing the stake: Upon withdrawing a stake, tax implications hinge on the initial transfer of ownership. Transferred ownership can lead to tax events, with CGT implications calculated from the value change when new tokens are returned. No initial transfer means no related tax consequences.
  • Disposing of staking rewards: Receiving tokens from staking counts as acquiring them for CGT purposes, with their market value in sterling setting the acquisition cost. This receipt isn't a CGT event. A future disposal of these tokens could result in a capital gain or loss, based on their value change and share matching rules that establish the cost basis for the disposal.

If there is a transfer of beneficial ownership during staking, it may result in a disposal for Capital Gains Tax purposes. 

When stakers receive new tokens as rewards, the acquisition cost is determined by the fair market value of the tokens upon receipt. Subsequent disposal of these tokens may lead to a capital gain or loss, depending on the change in value since acquisition.

The guidance from HMRC includes a list of factors to be considered in determining the nature of these staking rewards. While these factors are helpful, they are not definitive on their own; the ultimate classification relies on a comprehensive assessment of the circumstances. 

It is anticipated that HMRC expects the majority of such rewards to be considered taxable income.

  • The return is generated as a result of providing a service to the DeFi platform.
  • The amount of the return is predetermined at the outset of the contract (for instance, a fixed 4% APY).
  • The return is distributed by the DeFi platform directly to those providing liquidity.
  • Payments of the return are made at regular intervals.
  • The duration of staking is either set for a specific term or is relatively brief.

Criteria suggesting that returns are capital-based:

  • The return is uncertain and based on chance at the time the contract is made.
  • The return comes from the sale of a capital asset.
  • The return accrues from an increase in the value of a capital asset held by the liquidity provider.
  • The return is made through a singular payment.
  • The staking term is open-ended or extended over a long period.

How Kryptos Can Help Calculate Your UK Crypto Taxes

While the above-stated rules look straightforward, keeping track of multiple transactions for different asset pools can quickly turn complicated. Kryptos does this all for you in a matter of minutes.

Simply import your transactions from 5000+ DeFi protocols, 100+ wallets and exchanges, and support NFTs. Kryptos is your personal crypto tax assistant app that updates all your tax liabilities in a single dashboard and allows you to save taxes while staying compliant with the latest tax laws and it's completely FREE.

FAQs

1. Is crypto staking taxable in the UK?

Yes, crypto staking is taxable in the UK. The taxation of staking rewards depends on factors such as the classification of rewards (income or capital gains) and the nature of the staking activity.

2. How are staking rewards taxed in the UK?

Staking rewards can be taxed as income or capital gains. If treated as income, they are subject to income tax (ranging from 20% to 45%). If deemed capital gains, they are subject to capital gains tax (ranging from 10% to 20%).

3. What factors influence the tax treatment of staking rewards in the UK?

The tax treatment is influenced by facttors such as the type of return, payment frequency, staking period, and the intention of the staker. Rewards earned by providing a service to a DeFi platform and paid periodically are more likely to be taxed as income.

4. Are there different taxation events related to staking in the UK?

Yes, there are several taxation events related to staking, including making tokens available for staking, withdrawing the stake, and disposing of staking rewards. If there is a transfer of beneficial ownership during staking, it may result in a disposal for Capital Gains Tax purposes.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Top 10 Ways to Avoid Crypto Tax in the UK 2024

Curious about legally reducing your crypto tax bill in the UK? Here are 10 risk-free strategies for 2024 that will help you save a ton.

Are you a savvy crypto investor in the UK looking to reduce your tax bill legally?

Look no further.

In this blog, we'll show you the best strategies to maximize your investments while staying on the right side of the law.

Let's dive into these tax-saving tips so you can start saving like a pro!

1. HODL for the Long Term

One of the easiest and most effective ways to minimize crypto taxes in the UK is by holding onto your cryptocurrency for the long term.

This strategy works because unrealized gains aren't taxed. By not selling or trading your assets, you delay paying capital gains tax until you decide to cash out.

2. Utilize Tax-Free Allowances

Every individual in the UK has an annual capital gains tax exemption, which is £12,300 for the year 2023. By realizing gains within this threshold, you can legally avoid paying taxes on those gains.

Similarly, the personal allowance for income tax, set at £12,570, can be used to receive income from crypto investments tax-free, up to this amount. It's crucial to plan your disposals and income strategically to maximize these allowances.

3. Tax Loss Harvesting

Tax loss harvesting involves selling underperforming assets at a loss to offset gains from profitable investments. By strategically realizing losses, you can reduce your overall taxable income, thereby lowering your tax bill.

For instance, if you’ve made a £10,000 gain from the disposal of 1 BTC and you have an ETH token currently down £1,000 from your purchase price, you can sell this ETH token and offset this £1,000 loss against the £10,000 gain, bringing your tax base down to £9,000.

4. Gift Your Assets to Family Members

In the UK, gifting cryptocurrencies to family members, such as spouses or civil partners, is considered tax-free. 

This can be particularly advantageous if the recipient is in a lower tax bracket or has not used up their tax allowances. It's a legal way to distribute gains across family members and utilize multiple allowances.

5. Donate to Charities

Donating cryptocurrency to registered charities can be a tax-efficient way to reduce your tax liability in the UK. 

Charitable donations are eligible for tax relief, which can be claimed to reduce your overall taxable income. This not only supports good causes but also strategically lowers your tax liability.

6. Use a Self-Invested Personal Pension (SIPP)

Investing in cryptocurrencies through a SIPP can be a tax-efficient approach. Although you cannot directly invest or hold cryptocurrency in SIPP, there are indirect tax efficient options like setting up a trust or scheme.

After turning 55, you can withdraw up to 25% of your SIPP tax-free, making it a potentially lucrative retirement strategy.

7. Consider Offshore Options

Some crypto investors explore offshore options in low-tax jurisdictions to minimize their tax liabilities. 

However, it’s essential to consult with a financial advisor and ensure compliance with UK tax laws and regulations when considering this option.

8. Stay Informed and Seek Professional Advice

Tax laws and regulations are subject to change, and staying informed about the latest developments is crucial. 

Staying updated on the latest tax laws and seeking advice from tax professionals can help you optimize your tax position and avoid pitfalls. You can also leverage a UK's Top Crypto Tax Software - Kryptos to automate the entire process.

9. Record Keeping

Documenting every transaction's details, including dates, values, and associated costs, can provide a clear audit trail for HMRC.

Accurate record-keeping ensures that you can report your crypto activities accurately and claim any eligible deductions. 

To simplify the process, leverage crypto tax software like Kryptos that allows you to manage all your crypto assets including DeFi and NFTs in a single dashboard. 

This means you no longer have to manually keep track of your transactions, but can easily monitor your tax liability at any time and identify opportunities all year round.

10. Use Crypto Tax Software

Using a good crypto tax software can streamline the entire tax filing process. 

These tools can automatically track your transactions, calculate gains and losses, and generate legally compliant tax reports within minutes all while you enjoy a cup of hot chocolate, ensuring accurate and compliant tax filings.

Maximize Your Crypto Tax Savings with Kryptos

By employing these 10 strategies, investors can legally minimize their tax liabilities, allowing them to enjoy the benefits of their crypto investments while staying within the bounds of the law.

Crypto tax software like Kryptos can simplify this process and ensure you don’t miss out on any tax saving opportunity. Simply import your transactions from 5000+ DeFi protocols, 100+ wallets and exchanges, and support NFTs. 

The app updates all your tax liabilities in a single dashboard and allows you to save taxes while staying compliant with the latest tax laws.

Want to see how Kryptos can help simplify your crypto taxes? Sign Up Now for free.

FAQs

1. Do I need to pay taxes on my cryptocurrency investments in the UK?

Yes, cryptocurrency investments are subject to taxation in the UK. Profits from cryptocurrency trading, mining, staking, and other crypto-related activities are taxable and need to be reported to HMRC.

2. How are capital gains from cryptocurrency taxed in the UK?

Capital gains from cryptocurrency transactions are subject to Capital Gains Tax (CGT). You need to calculate the gain by deducting the cost of acquisition (purchase price) from the selling price. The annual CGT allowance allows you to earn up to a certain amount tax-free; however, gains beyond this threshold are subject to CGT.

3. What is the tax rate for capital gains on cryptocurrencies in the UK?

The tax rate for capital gains depends on your total taxable income and your tax bracket. As of the 2023/2024 tax year, the rates can range from 10% to 20% for individuals, with higher rates for trustees or personal representatives.

4. Are there any tax-free allowances for cryptocurrency gains in the UK?

Yes, there are tax-free allowances. The annual capital gains tax allowance is £12,300, meaning you can earn up to this amount in gains tax-free. Moreover, there are tax-free allowances for income tax, with the personal allowance set at £12,570 for the same tax year.

5. Can I offset cryptocurrency losses against gains to reduce my tax liability?

Yes, you can offset losses from cryptocurrency transactions against gains to reduce your overall tax liability. This strategy is known as tax loss harvesting and can help lower your taxable income.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Navigating DeFi Taxes in the UK: A Comprehensive Guide for 2024

Curious about DeFi taxes in the UK for 2024? Get clear insights on DeFi tax rules, Capital Gains, and Income Tax in our detailed guide.

DeFi enthusiasts and crypto investors in the UK, have you ever pondered the impact of your decentralized finance activities on your tax obligations? 

Well, of course you have!

You wouldn’t be here if that wasn’t the case.

As the DeFi space continues to expand, it's vital to grasp the tax consequences of your transactions. The HMRC has recently issued guidance regarding DeFi taxation in the UK, clarifying whether your crypto endeavours are subject to Capital Gains Tax or Income Tax.

In this guide, we'll unravel the complexities of DeFi taxation, demystify the 'nature of the transaction,' and examine the key factors influencing the tax treatment of your DeFi returns. Whether you're a seasoned DeFi user or just entering the world of decentralized finance, this blog post equips you with the knowledge to navigate the UK's tax landscape in the ever-evolving crypto sphere.

Understanding DeFi

Decentralized Finance (DeFi) harnesses the power of cryptocurrencies, blockchain technology, and smart contracts to provide borderless access to financial services such as trading, lending, borrowing, and yield farming. Dapps (Decentralised Apps) and DEXs (Decentralised Exchanges) are the spine of DeFi as they offer inclusive financial services to everyone thanks to smart contracts that offer a trustless environment.

What are Smart Contracts?

Smart contracts are essentially a special piece of code that executes a certain set of actions when certain conditions are met. The special thing about smart contracts is that they are autonomous and do not require intermediaries. This creates a trustless environment which acts as a basis for various DeFi services with no middlemen.

How DeFi Transactions are Taxed?

HMRC has released specific guidance on crypto taxation, including DeFi assets. It's crucial to differentiate between various DeFi activities as they are subject to different tax treatments. 

Here's a breakdown of how DeFi activities are taxed in the UK:

1. Crypto Capital Gains Tax

In the UK, Capital Gains Tax (CGT) on crypto is levied on profits arising from the sale of digital assets, including those obtained through DeFi ventures. The applicable CGT rate depends on your income bracket, with a tax-free allowance for capital gains set at £6,000 for the 2023/2024 tax year.

The following tax rates apply on Crypto Gains:

2. Crypto Income Tax

Income tax applies when you earn income from DeFi activities like staking, mining, and yield farming in the UK. Accurate reporting of these earnings to HMRC is essential to ensure compliance with tax regulations.

3. Taxation of DeFi Lending and Borrowing

The tax implications in the UK hinge on beneficial ownership transfers, especially when it comes to DeFi assets. If beneficial ownership changes hands, it's considered a taxable event and falls under Capital Gains Tax (CGT). Moreover, any interest earned from DeFi activities is subject to Income Tax.

4. Airdrop Taxes

Airdrops that are provided in return for, or in expectation of, a service are subject to Income Tax, reflecting the importance of accurately reporting them to HMRC. Furthermore, Capital Gains Tax (CGT) may apply when you decide to sell or exchange the airdropped assets, so it's essential to consider the potential tax implications when dealing with airdrops.

5. Yield Farming Taxes

Yield farming refers to depositing tokens into a liquidity pool on a DeFi protocol to earn rewards, typically paid out in the protocol's governance token.Income from yield farming in the UK is viewed as taxable income and falls under the purview of Income Tax. This includes any newly acquired tokens resulting from assets that you've deposited in yield farming activities.

Taxation of DeFi Protocols and Related Transactions

1. DEX Trades

Trading on decentralized exchanges attracts tax obligations in the UK. Notably, crypto-to-crypto trades are considered taxable events, making them subject to Capital Gains Tax. 

2. Staking

Staking income is subject to Income Tax, and swapping or selling earned tokens is subject to CGT.

3. Liquidity Mining

Adding or removing liquidity pool (LP) tokens is subject to CGT if received in exchange for providing assets. LP tokens received while holding a position are subject to Income Tax.

4. Flashloans, Play-to-Earn, and Gas Fees

Gains from flashloans, play-to-earn activities, and gas fees are subject to CGT or Income Tax, depending on the nature of the transaction.

Special Cases in DeFi Taxation:

1. Synthetic Assets, Options, Margin Trading, Perpetuals, Futures, and Derivatives:

All profits from such avenues are subject to CGT. Although we suggest seeking guidance from an experienced tax professional to gain more clarity on the subject.

2. Wrapped Tokens and Crypto Bridges:

Wrapping tokens falls under crypto-to-crypto trade and is therefore subject to CGT. Taxation related to crypto bridges varies and requires consultation with experts.

Conclusion

Navigating the complexities of UK DeFi crypto taxes in 2023 demands careful consideration of various activities and their corresponding tax implications. Staying informed, maintaining accurate records, and seeking guidance from cryptocurrency tax experts are vital steps to ensure compliance with HMRC regulations. As the DeFi space continues to innovate, staying ahead of the taxation curve will empower UK residents to engage confidenly with DeFi transactions.

Disclaimer: This article provides general information and should not be considered as professional tax advice. Tax regulations and guidelines may change, so it is recommended to consult with a qualified tax advisor for the most up-to-date and personalized information.

FAQ 

1. What is DeFi, and how is it different from traditional finance?

 DeFi, short for Decentralized Finance, utilizes cryptocurrencies, blockchain technology, and smart contracts to provide financial services without the need for traditional intermediaries like banks. Unlike traditional finance, DeFi operates on decentralized networks, offering borderless access to services such as lending, borrowing, trading, and yield farming.

2. How are DeFi activities taxed in the UK?

 DeFi activities are subject to various taxes in the UK, including Capital Gains Tax (CGT) for profits from selling digital assets, and Income Tax for earnings from activities like staking, mining, and yield farming. Taxation depends on the specific DeFi activity and the nature of the transaction, whether it's a crypto-to-crypto trade, income, or a taxable event.

3. What is Capital Gains Tax (CGT) and how does it apply to DeFi?

CGT is a tax applied to the profit made from selling assets, including cryptocurrencies acquired through DeFi activities. For DeFi, CGT is applicable when selling or swapping digital assets. The tax rate depends on your income level, and there's a tax-free allowance for capital gains, which was £6,000 for the 2023/2024 tax year.

4. How are airdrops and yield farming taxed in the UK?

Airdrops are considered income and are subject to Income Tax. If you sell or swap airdropped tokens, Capital Gains Tax may also apply. Yield farming returns are treated as income and are subject to Income Tax, including new tokens earned from deposited assets.

5. Are gas fees, flashloans, and play-to-earn activities taxable?

Yes, gas fees paid in Ethereum are considered part of the cost basis of the acquired asset or as an advertising cost related to the disposal transaction. Gains from flashloans, play-to-earn activities, and other similar activities are subject to Capital Gains Tax or Income Tax, depending on the specific nature of the transaction.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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10 ways to pay less crypto tax in Canada 2024

Here are a few ways to pay less crypto tax in Canada to Elevate your financial game in 2024!

How to pay less crypto tax in Canada

Whether you're riding the waves of a successful crypto year or navigating through market downturns, optimizing your tax position is crucial. 

In Canada, paying less crypto tax in 2024 is not about dodging the Canada Revenue Agency (CRA) but rather employing legal strategies to minimize your tax liabilities. 

In this guide, we'll explore 10 effective ways to ensure you're making the most of your crypto investments while staying on the right side of the taxman.

1. Balance out your wins and losses

One effective strategy to reduce your tax bill is to offset capital losses against capital gains. In Canada, you can offset half of your capital losses against gains. Suppose you made a $500 gain from selling ETH and a $500 loss from selling BTC; these would cancel each other out, resulting in a taxable gain of only $250.

For those with more losses than gains, carry them forward to future tax years indefinitely or carry them backward, up to three preceding tax years, to offset any gains and potentially obtain a tax refund.

2. Harvest Your Losses Strategically

Timing is crucial in the world of crypto taxation. 

Consider harvesting your losses by selling, trading, spending, or gifting underperforming assets. By doing this strategically, you can offset losses against gains, minimizing your tax liability. Utilize crypto portfolio trackers like Kryptos to identify unrealized losses throughout the financial year, enabling you to harvest them before the year-end.

Remember, if you decide to buy back the assets, wait for more than 30 days to avoid falling afoul of Canada's superficial loss rule.

3. Invest in a Retirement Savings Plan (RRSP)

Planning to HODL your crypto for the long term? Consider securing your future with a Registered Retirement Savings Plan (RRSP).

Every time you contribute to your RRSP, you can take advantage of a tax deduction, giving you a chance to lower your overall tax bill. Keep in mind, when it's time to withdraw funds, taxes will apply. By the time you retire, you'll likely be in a lower tax bracket.

Just bear in mind, there's a yearly limit on how much you can contribute.

4. Consider opting for a Bitcoin ETF

Exchange-Traded Funds (ETFs) is a way to invest in Bitcoin without the complexities of direct ownership. Bitcoin ETFs track the performance and price of Bitcoin, allowing you to speculate on its gains and losses.

For investors seeking exposure to Bitcoin without direct ownership, Bitcoin Exchange-Traded Funds (ETFs) present a viable option. 

Several Bitcoin ETFs are available on the Toronto Stock Exchange: 

  • Purpose Bitcoin ETF (BTCC)
  • Evolve Bitcoin ETF (EBIT)
  • CI Galaxy Bitcoin ETF (BTCX)

However, exercise caution, as some ETFs come with higher management fees.

5. Donating Crypto to Charity

Donating crypto to a registered charity can offer tax benefits, but the rules are intricate due to the deemed fair market value rule. Since crypto is considered a commodity, not cash, donations follow different rules than cash donations.

When donating crypto, be aware of the potential Capital Gains Tax on the appreciated value. Document the acquisition date and be transparent with the charity to ensure compliance with CRA regulations.

Scenario:

1. Crypto Donation:

In December 2023, you decide to donate 1 Ethereum (ETH) to a registered charity.

You originally purchased this ETH in January 2022 for $500.

2. Current Fair Market Value:

At the time of the donation in December 2023, the fair market value of 1 ETH was $3,000.

3. Calculation:

Your capital gain is the difference between the fair market value at the time of donation and the acquisition cost.

Capital Gain = $3,000 - $500 = $2,500.

4. Tax Implication:

Since the donation is considered a disposition of the asset, you may be liable for Capital Gains Tax on the capital gain.

In Canada, only 50% of capital gains are taxable. Therefore, you'll only be taxed on half of the capital gain.

In this case, Taxable Capital Gain: $2,500 / 2 = $1,250

5. Charitable Receipt:

The charity issues a tax receipt based on the acquisition cost, not the current fair market value.

You receive a tax receipt for $500, reflecting the amount potentially eligible for a tax deduction.

6. Tax Deduction:

When filing your taxes, you can potentially deduct the $500 from your taxable income due to the charitable donation

However, you still have a Capital Gains Tax obligation on the $2,500 gain which is $1,250

6. Present yourself as an individual investor 

Distinguish yourself as an individual investor rather than engaging in business-like activities to benefit from favorable tax treatment. The CRA considers various factors when making this determination, such as investing for commercial purposes, undertaking business-like investment activities, promoting a product or service, and demonstrating an intent to make a profit.

Individual investors typically pay Capital Gains Tax on only half of their profits, while those seen as conducting business may be subject to Income Tax on the entire profit.

7. HODL for Tax Efficiency

The age-old strategy of "HODLing" (holding onto your crypto assets without selling, trading, spending, or gifting) remains a straightforward way to avoid immediate tax liabilities. By refraining from triggering taxable events, you defer your tax obligations until you decide to cash out.

Keep in mind that patience is key, and this strategy aligns well with a long-term investment mindset.

8. Use Kryptos for Tax Reporting: Simplify Your Tax Filing Process

Tracking your crypto transactions, cost basis, and tax obligations across various exchanges and wallets can be overwhelming. Consider using Kryptos, a reliable crypto tax software that works with hundreds of exchanges, wallets, and blockchains.

Kryptos automates the process, identifying your cost basis, taxable transactions, and calculating capital gains and losses. The platform provides a comprehensive tax summary and downloadable reports, ensuring accurate and efficient tax filing. For Canadian users, Kryptos offers the Complete Tax Report, the Schedule 3 form, and compatibility with TurboTax.

9. Stay Informed About Regulatory Changes

Cryptocurrency regulations are subject to change, and staying informed about updates is crucial for making informed decisions. The regulatory landscape can impact tax obligations and reporting requirements. Regularly check for updates from the CRA and other relevant authorities to ensure compliance with the latest guidelines.

10. Seek Professional Advice

While this guide provides valuable insights, it's essential to acknowledge the complexity of crypto taxation. Seeking advice from financial, legal, or tax professionals can provide personalized guidance based on your unique circumstances. Professionals can offer strategies tailored to your financial goals, ensuring you make informed decisions that align with current regulations

In conclusion, crypto taxes in Canada require a strategic approach. By leveraging these eight methods, you can optimize your tax position, potentially saving money while staying compliant with CRA regulations. Remember to stay informed, consult professionals, and make decisions aligned with your financial goals.

FAQs

1. How can I offset losses against gains to reduce my crypto tax liability in Canada?

One effective strategy to minimize your tax bill is to offset capital losses against capital gains. In Canada, you can offset half of your capital losses against gains. For instance, if you made a $500 gain from selling ETH and a $500 loss from selling BTC, these would cancel each other out, resulting in a taxable gain of only $250. Learn more about this strategy and its implications for your crypto investments.

2. What is loss harvesting, and how can it help me optimize my crypto tax position in Canada?

Timing is crucial in the world of crypto taxation. Discover how harvesting your losses by strategically selling, trading, or gifting underperforming assets can offset losses against gains, minimizing your tax liability. Explore the importance of using crypto portfolio trackers like Kryptos to identify unrealized losses and the precautions to take to avoid Canada's superficial loss rule.

3. How can investing in a Retirement Savings Plan (RRSP) benefit my long-term crypto holdings in Canada?

Explore the advantages of channeling your crypto investments into a Registered Retirement Savings Plan (RRSP). Understand how contributions to an RRSP offer a tax deduction, reducing your current tax burden. Learn about the potential benefits of facing lower tax rates during retirement despite being taxed upon withdrawal.

4. What are Bitcoin ETFs, and how can they simplify my crypto investments for tax purposes in Canada?

Discover how Exchange-Traded Funds (ETFs) such as Purpose Bitcoin ETF (BTCC), Evolve Bitcoin ETF (EBIT), and CI Galaxy Bitcoin ETF (BTCX) can provide exposure to Bitcoin without direct ownership. Learn about the potential gains and losses associated with Bitcoin ETFs and the importance of exercising caution due to varying management fees.

5. What are the tax implications of donating crypto to charity in Canada?

Understand the intricate rules of donating crypto to a registered charity in Canada, considering the deemed fair market value rule. Learn about the potential Capital Gains Tax on appreciated value and the documentation required for compliance with CRA regulations. Dive into a real-life scenario of crypto donation and its tax implications, including the calculation of capital gains and potential tax deductions.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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How to Avoid Crypto Tax in Estonia

Wondering how to steer clear of crypto taxes? Here are a few strategies on how you can avoid crypto tax in Estonia.

Estonia, known for its progressive stance on technology and innovation, has become a hub for cryptocurrency activities. With clear guidelines on crypto taxation, individuals engaged in the crypto space seek ways to navigate the tax landscape efficiently. In this guide, we'll explore strategies on how to avoid crypto tax in Estonia, making the most of legal exemptions and smart financial practices.

BUT FIRST - Is Crypto Taxed in Estonia?

Before we explore ways to avoid taxes, it's important to wrap our heads around how Estonia handles crypto taxes. The rule of the land is a simple 20% income tax on profits made through crypto deals. This includes various activities like selling crypto for regular money, exchanging between different cryptocurrencies, making purchases with crypto, and yes, even crypto mining.

HODLing Crypto

Holding onto your crypto for the long run? It's a smart move, and it comes with tax benefits too. When you HODL, you won't pay any taxes on your crypto.

Just remember to keep track of how much you spent to buy your crypto. This way, you can accurately figure out your gains or losses later on when you sell the crypto.

For those who plan to hold onto their crypto for a while, it's a good idea to use a platform that can store trading information for extended periods. Exchanges usually only keep records for 3 to 6 months. You can then easily import this data into Kryptos to quickly assess your tax obligations.

Crypto Transfers in between Wallet

Transferring crypto between wallets and swapping regular money for crypto are untaxed transactions.

Non-Taxable Activities: Moving crypto between different electronic wallets and giving crypto as a gift are not subject to taxation.

Make the Most of General Income Tax Allowance

If you're in Estonia, there's a nifty trick to ease the tax burden – the general income tax allowance. Starting 2023, this sweet deal can range from €654 per month to €7,848 per year, depending on your income. 

And guess what? If you're enjoying the golden years of retirement, that allowance gets a little boost to a solid €704 per month or €8,448 per year. Taking full advantage of this allowance can work wonders in cutting down your taxable income.

Avoid Crypto tax by Gifting Crypto

Gifting crypto is a tax-free endeavor in Estonia. By transferring your crypto assets as a gift to another individual, you not only share the wealth but also sidestep the tax implications that typically accompany sales or exchanges. This can be a strategic way to manage your crypto portfolio while minimizing tax liability.

Crypto Donation 

Private individuals contributing to eligible associations and foundations can benefit from tax deductions up to €1200. The process involves submitting a "Declaration of gifts and donations received" to the Tax and Customs Board. The donors, in turn, see this information automatically filled into their income tax returns, streamlining the process.

Crypto Mining

Individual Mining: For those engaged in personal crypto mining or data processing, there's an opportunity to minimize tax burdens. Although income from individual mining is considered business income, it doesn't have tax withheld. However, it's essential to note that expenses related to mining activities, such as equipment and electricity costs, cannot be deducted for tax purposes.

Registering as a Business: Long-term or professional crypto miners have the option to register either as a sole proprietor or a legal entity. This strategic move opens doors to declare and deduct business-related expenses. While the taxman takes a share through income tax, social tax, and a contribution to a mandatory funded pension, savvy miners can optimize their tax position by aligning with the right business structure.

Optimize Crypto Staking and Lending

Tax-Free Staking: Staking your crypto, akin to lending it out, is generally not seen as a taxable event in Estonia. However, any interest earned from staking activities becomes taxable. To avoid surprises, ensure that you declare the interest income in the relevant section of your income tax return for the year you received it.

Tax-Free Crypto Lending: Lending your crypto to others is generally tax-free in Estonia. However, be aware that any interest earned from these lending activities is subject to income tax. When reporting your income tax return, accurately declare any additional income generated from lending activities.

Stay Up-to-Date on Airdrops and Forks

Right now, Estonia doesn't have a clear rulebook on how they tax airdrops and forks. But here's the scoop – tokens you get from airdrops and hard forks probably end up in the income tax basket. The good news is, soft forks usually skate by without any tax fuss because they don't cook up new tokens for everyone involved.

Now, this is just an educated guess, and the Tax Authority (MTA) might see it differently. To be on the safe side, it's wise to have a chat with a tax expert. They can help you decode the tax maze around these transactions and make sure you're in the clear.

Use your Crypto Losses to reduce your Tax Bill 

While losses from crypto transactions cannot be directly deducted from your taxable income in Estonia, strategic planning can still be beneficial. Consider timing your transactions to offset gains with losses, though this won't directly reduce your tax bill. Consulting with tax professionals can help you explore potential ways to make the most of losses within the legal framework.

Make Informed Decisions on ICOs and NFTs

Initial Coin Offerings (ICOs) and Non-Fungible Tokens (NFTs) have gained popularity in the crypto space. While there isn't a straightforward rule on how taxes apply to tokens obtained through ICOs, and taxes on NFTs depend on various factors, seeking professional advice can help you make informed decisions and stay tax-efficient.

Meeting Filing Deadlines and Keeping Records

Timely Tax Declaration: Residents in Estonia have until April 30th (or May 2 for the year 2023) to submit their tax returns. Electronic filing opens on February 15th, offering a digital route for a seamless experience.

Records for MTA: To ensure a smooth tax filing process, maintain detailed records of all transactions, acquisition prices, disposals, fair market values, and the types of assets bought, sold, exchanged, or traded. These records provide essential documentation for accurate reporting.

Cut Down on Crypto Taxes with Kryptos

Kryptos makes handling your crypto taxes a breeze. It not only does the heavy lifting by calculating your capital gains, losses, income, and expenses, but it also comes equipped with features to optimize your tax situation.

With Kryptos, you can keep an eye on your unrealized gains and losses, giving you valuable insights into when to HODL and when to make a move.

What's more, Kryptos supports various cost basis methods, such as FIFO, LIFO, and HIFO. You have the flexibility to tweak these settings and see how they impact your overall crypto taxes.

FAQs

1. What is the basic income tax allowance in Estonia, and how can it help in minimizing crypto tax liability?

In Estonia, the basic income tax allowance as of 2023 ranges from €654 to €7,848 annually, based on income. For those of pensionable age, it's a fixed €704 per month or €8,448 per year. Leveraging this allowance strategically can significantly reduce taxable crypto gains.

2. Is gifting crypto a viable strategy to avoid taxes in Estonia, and are there any restrictions on the recipients?

Yes, gifting crypto is a tax-free transaction in Estonia. You can transfer cryptocurrency as a gift to individuals or registered non-profit organizations. There are no taxes triggered by gifting, presenting an effective strategy to reduce tax liability while supporting causes.

3. How can self-employed individuals in Estonia utilize the basic exemption to minimize crypto tax burdens?

Self-employed individuals in Estonia can utilize the basic exemption by adhering to advance tax payment deadlines. These deadlines, including March 15th, June 15th, September 15th, and December 15th, allow for strategic management of social security contributions, minimizing overall tax burdens.

4. What should individuals be aware of regarding taxation when staking crypto in Estonia?

While staking crypto is generally not taxable, any interest earned from lending out cryptocurrency is subject to taxation. Individuals should accurately declare interest received in the relevant section of their income tax return (Part II of Table 5.1 or Table 8.1).

5. Are there specific considerations for navigating taxes on airdrops, forks, ICOs, and NFTs in Estonia?

Yes, airdrops and forks, while lacking clear taxation guidelines, are expected to be treated as income. Profits from ICOs may be subject to income tax, and NFT transactions have varying tax treatments. Seeking guidance from tax professionals is advisable to navigate these specific crypto activities and optimize tax positions in compliance with Estonian regulations.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey

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How to Report Crypto Taxes with TurboTax Canada in 2024

Simplify Canada crypto tax reporting with TurboTax & Kryptos in 2024. Our guide offers step-by-step insights, ensuring accuracy & compliance.

As tax season has finally arrived, crypto investors using TurboTax Canada for crypto taxes may be wondering how to file your taxes. Well, this step-by-step guide will walk you through the process, and ensure a seamless filing experience before the April 30 deadline.

BUT FIRST - Sign up with Kryptos!

It's crucial to have your crypto transaction information organized. This is where Kryptos comes into play.

1. Sign Up and Connect:

  • Begin by signing up for a Kryptos Account.
  • Connect all your wallets, exchanges, and blockchains to ensure comprehensive coverage.
  • Confirm that your settings are tailored for Canada, specifying CAD, the Adjusted Cost Basis method, and the correct financial year.

2. Download the Complete Tax Report:

Head to the tax report page on Kryptos and download the Complete Tax Report. This document will be the foundation for your TurboTax filing.

Then on TurboTax

1. TurboTax Setup:

  • Log in or sign up for your TurboTax Canada account.
  • Initiate a new 2024 return by Selecting “start a new 2024 return”.
  • Opt for the Premier Plan or higher, as these cater specifically to crypto taxes.

2. Personal Details:

Fill in your personal information to set up your TurboTax account. Feeling lost! Feel free to check out the TurboTax Site for more information regarding filing with TurboTax. 

Unsure about what counts as income or capital gain?, take a look at our guide on crypto taxes in Canada.

Reporting Crypto Capital Gains in TurboTax 

1. Access the Investments Section:

  • Log in to your TurboTax Canada account.
  • In the menu on the left, select the "Investments" section.

2. Investments Profile:

Click on "Investments Profile" to navigate to the relevant page.

3. Select Capital Gains or Losses:

Check the box for "Capital Gains or Losses" and, if applicable, include interest and other investments.

4. Navigate Through Pages:

Click "Continue" to progress through the relevant pages.

5. Capital Gains Page:

You'll land on the capital gains page in TurboTax. Note that not all sections need completion for cryptocurrency capital gains. Some are intended for different types of assets.

6. Virtual Currency Transactions:

From the drop-down menu next to “Type of Capital Property Disposed Of”, select “Virtual Currency Transactions (Cryptocurrency, Tokens, etc.)”.

7. Copy and Paste from Kryptos:

  • Refer to your Kryptos Complete Tax Report.
  • Copy the figures for “Proceeds from Sales”, “Acquisition Costs”, and, if applicable, “Allowable Expenses”.
  • Paste these figures into the corresponding boxes in TurboTax.

8. Review and Confirm:

  • Click "Done" to let TurboTax calculate your capital gains.
  • Double-check the figures with Kryptos Complete Tax Report.
  • Review and amend other information on the page if necessary.

9. Completion:

Click "Done" to finalize the capital gains reporting section.

Additional Considerations:

If you have capital gains or losses from other sources, this is the section to report them.

TurboTax Canada may have specific sections for unique circumstances – explore these for detailed reporting.

A Few Important Notes

  • The blog post highlights the need for a smooth and precise data transfer from Kryptos to TurboTax.
  • Special attention is given to capital gains and income reporting, with detailed steps for each.
  • The article reminds users that provincial differences might lead to additional reporting requirements.
  • Readers are encouraged to refer to the Canada Revenue Agency (CRA) guidance for clarity on allowable expenses.

With the help of Kryptos and TurboTax Canada, reporting crypto taxes in 2024 becomes a manageable task. By following this detailed guide, you'll not only meet the April 30 deadline but also ensure accuracy in your crypto tax filings. Stay informed, organized, and tax-ready. 

FAQs 

1. Why should I sign up with Kryptos before using TurboTax Canada for crypto tax reporting in 2024?

It's crucial to have your crypto transaction information organized first. Kryptos helps streamline this process by allowing you to connect all your wallets, exchanges, and blockchains, ensuring comprehensive coverage. The platform also provides a tailored Complete Tax Report, serving as the foundation for a smooth TurboTax filing.

2. How do I download the Complete Tax Report from Kryptos for TurboTax Canada?

Once your crypto transactions are organized on Kryptos, head to the tax report page and download the Complete Tax Report. This document will be essential for your TurboTax filing, providing a detailed overview of your crypto activities.

3. Which TurboTax plan should I choose for crypto tax reporting in Canada?

To cater specifically to crypto taxes, it's recommended to opt for the Premier Plan or higher when setting up your TurboTax Canada account. These plans include features that align with the complexities of reporting cryptocurrency transactions.

4. How do I report crypto capital gains in TurboTax Canada for the 2024 tax year?

Reporting crypto capital gains in TurboTax Canada involves navigating through the Investments section. Follow the steps outlined in the article, including accessing the Investments Profile, selecting Capital Gains or Losses, and inputting information from your Kryptos Complete Tax Report. Ensure accuracy by reviewing and confirming the figures before finalizing the reporting section.

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How Exchange Fees Can Reduce Your Crypto Taxes In USA

Learn how exchange fees can lower your crypto tax bill in the USA this year 2024.

Trading crypto on exchanges and paying transaction fees?

Well we all know that is a common thing!

But what if you tell you a jaw dropping secret, Those exchange fees might help lower your tax bill!

Well yes they do! 

In this guide, we'll explain how exchange fees get taxed and share a simple method to include them on your tax return.

So, which crypto fees can you deduct on your taxes?

Here are some common types of fees you might come across. If any of these fees are part of a transaction, they're usually tax deductible:

  • Transaction Fees
  • Exchange Fees
  • Network Fees (also known as gas fees)
  • Wallet Fees
  • Conversion Fees
  • Listing Fees
  • Staking Fees
  • DeFi Platform Fees
  • NFT Marketplace Fees

Keep in mind, the names and specifics of these fees can vary depending on the network, exchange, wallet, or platform you're using. But as a general rule, if the fee is linked to a transaction's cost, it's likely deductible.

Exchange Fees?

When you use cryptocurrency exchanges like Coinbase, Gemini, or Kraken, you often have to pay fees for buying, selling, or moving your crypto around. These fees help these big exchanges keep their operations running smoothly.

Leveraging Exchange Fees to Reduce Capital Gains Tax

If you're running a business, you can usually write off exchange fees as a necessary expense. But for individuals, exchange fees aren't typically considered an itemized deduction.

However, if you're directly dealing with trades, you might be able to include exchange fees in your cost basis or subtract them from your gross proceeds. This could potentially lower the amount of capital gains tax you pay.

How Capital Gains Tax Works?

To grasp the tax advantages related to exchange fees, let's go over the basics of calculating capital gains tax.

Usually, when crypto investors sell their cryptocurrency, they either make a profit (capital gain) or a loss. To figure out the capital gain or loss, you can use this simple formula:

Capital gain/loss = Disposal Amount - Cost Basis

In this formula, the Disposal amount represents the amount you receive from selling your cryptocurrency. On the other hand, the cost basis is the original price you paid for the cryptocurrency.

For more details on how cryptocurrency taxes are computed, take a look at our comprehensive USA Crypto Tax Guide.

How Exchange Fees Affect Your Capital Gains

  • When You Buy Cryptocurrency: If you're paying exchange fees while buying cryptocurrency, you can include those fees in your cost basis. This might lower your capital gain or increase your capital loss when you sell the crypto later on.
  • When You Sell Cryptocurrency: Similarly, if you're paying exchange fees when selling cryptocurrency, you can deduct those fees from your Disposal amount. This could also decrease your capital gain or increase your capital loss.

Can Transfer Fees Lower Capital Gains?

Previously, the IRS stated that fees could only affect the cost basis or Disposal Amount under specific circumstances:

  • When they're directly tied to buying and selling.
  • When they increased the asset's value.

Since transfer fees don't fit into these categories, it's likely that fees for moving cryptocurrency between wallets won't lower an individual's tax responsibility.

However, businesses might be able to deduct transfer fees as an expense if wallet-to-wallet transfers are crucial to their operations.

Are Network/Gas Fees Treated the Same Way?

Yes, similar rules apply. If you've paid network/gas fees to complete a transaction on the blockchain, you might be able to include these fees in your cost basis or subtract them from your disposal amount. This is applicable if the fees were directly linked to buying or selling an asset.

How Should I Report my Exchange Fees in My Tax Form?

You report capital gains and losses on Form 8949. You can add exchange fees to your cost basis in column (d) and deduct them from your disposal amount in column (e).

To learn more about completing Form 8949, take a look at our guide on reporting crypto taxes in the USA

How to Include Exchange Fees in Your Tax Filing

Tracking exchange fees for numerous trades can be challenging, especially if you have many transactions.

Fortunately, there's a simpler method. By using Kryptos, you can effortlessly import trades from platforms such as Binace, Coinbase, Kraken and Gemini. Once all your transactions are imported, you can generate a comprehensive tax report that includes the relevant exchange fees.

Make Your Crypto Tax Reporting Easier with Kryptos

Kryptos is Your Personal Crypto Tax Assistant that simplifies crypto taxes. Not only does it effortlessly calculate your crypto taxes such as capital gains, losses, income, and expenses, but it also provides features to optimize your tax position.

Track your unrealized gains and losses with Kryptos, gaining insights into when to HODL and when to make decisions about your investments.

Kryptos offers support for various cost basis methods, including FIFO, LIFO, and HIFO. You can customize these settings to see how they impact your crypto taxes.

Beyond saving you from hours of spreadsheet work and calculations, Kryptos also cuts down the time spent on form-filling. For US investors, Kryptos generates pre-filled forms ready for submission to the IRS or your tax portal. These include - IRS Form 8949 & Schedule D, TurboTax Report, Tax Act Report, Complete Tax Report. 

Make your crypto tax experience more efficient with Kryptos.

Curious about your crypto tax bill?

The crypto tax you owe is influenced by your yearly income and the duration you've held your crypto. Typically, the higher your annual income, the greater the percentage you'll pay in Capital Gains Tax. Check out the ultimate USA crypto tax guide to learn how to calculate your crypto taxes.

FAQs

1. What types of crypto fees can I deduct on my taxes in the USA?

You can deduct various types of crypto fees on your taxes, including transaction fees, exchange fees, network fees (gas fees), wallet fees, conversion fees, listing fees, staking fees, DeFi platform fees, and NFT marketplace fees.

2. How can exchange fees help reduce my capital gains tax liability?

While exchange fees aren't typically considered an itemized deduction for individuals, you might be able to include them in your cost basis or deduct them from your gross proceeds. Doing so could potentially lower the amount of capital gains tax you owe.

3. Do transfer fees affect capital gains tax in the same way as exchange fees?

Transfer fees, such as those incurred when moving cryptocurrency between wallets, may not directly impact your tax responsibility unless they're essential to business operations. Individuals typically can't lower their tax liability with transfer fees.

4. Are network/gas fees treated similarly to exchange fees for tax purposes?

Yes, similar rules apply to network/gas fees. If these fees are directly linked to buying or selling an asset, you may include them in your cost basis or subtract them from your disposal amount when calculating capital gains or losses for tax purposes

5. How do I report exchange fees on my tax form?

Exchange fees can be reported on Form 8949. You can add them to your cost basis in column (d) and deduct them from your disposal amount in column (e). Utilizing software like Kryptos can simplify the process by importing transactions and generating comprehensive tax reports.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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7 Tax Saving Strategies for Norwegian Crypto Investors

Here are some simple strategies for saving taxes as a crypto investor in Norway. Best financial tips to Save more on crypto taxes!

For crypto enthusiasts in Norway, figuring out crypto taxes can seem like exploring uncharted territory. With unclear rules and a constantly changing crypto ecosystem, it can be difficult to understand how your transactions are taxed. But don't worry! This guide is meant to provide legal strategies to help you minimize taxes while complying with the law.

How Crypto is taxed in Norway?

Before we list down the tax-saving strategies, let's first see how Norway views crypto and how it is taxed. The Norwegian tax authority, Skatitteten, classifies crypto not as a currency but as a capital asset. This means that any income generated from crypto assets is subject to taxation. Unlike some countries, Norway has no dedicated capital income tax. Instead, all income is taxed at a flat rate of 22%. Additionally, if your net worth exceeds NOK 1,700,000, you may face wealth taxes imposed by your province and state.

Now that you have an idea how Norway taxes cryptocurrencies, let's talk about the strategies that you can use to save on those hard earned gains.

Tax-Saving strategies to minimise your crypto tax bill

1. Making the most of wealth tax benefits

Wealth tax is something to think about when your total assets exceed 1,700,000 NOK. To lower your tax bill, think about using legal deductions and benefits. Every Norwegian resident gets a basic deduction of NOK 79,600, which can greatly reduce what they owe in taxes.

2. Smart crypto transactions

Making tax-smart transaction plans can make a big difference to your balance. Here are some things to think about:

  • Timing your Disposals: Think carefully about when you sell your crypto. Choosing the right time can help you manage your taxes better.
  • Tax-loss harvesting: This is a powerful strategy to offset your capital gains. If you have lost money on some crypto investments, selling them strategically can reduce your overall tax bill. Be sure to keep good records of your losses and talk to a tax expert for advice.

Important Note: Tax-loss harvesting means selling assets at a loss to offset capital gains. In Norway, you can carry forward excess losses for up to 10 years, which can be really useful for tax planning.

3. Make the most of tax-free transactions

  • Lost/Stolen crypto: Report losses from theft or embezzlement supported by a police report for possible tax deductions.
  • Transfers between wallets: Transferring crypto between wallets is a Non-taxable event when you can prove ownership of the transferred assets.
  • Crypto gifting and donating: Gifts and donations may be non-taxable if certain criteria are met. Keep detailed records for documentation.

4. Record-keeping: maintain detailed records

The importance of careful record keeping cannot be underestimated. Keep comprehensive records of all your crypto transactions including purchases, sales and exchanges. This will not only help you report your income accurately but will also serve as evidence in case of an audit.

5. Seek professional advice: consult a tax professional

Dealing with the complexities of crypto taxation can be challenging. Consider seeking professional advice from a tax expert with experience in cryptocurrency matters. They can provide personalized guidance based on your specific financial situation and help you make informed decisions.

6. Stay informed: stay aware of regulatory changes

The crypto landscape is dynamic, and regulatory changes can have a significant impact on taxation. Stay informed about any updates or amendments to tax laws related to cryptocurrencies. This proactive approach ensures that you can adapt your strategies accordingly and remain complaint with the latest regulations.

7. Use a crypto tax software

As a crypto investor in Norway, you've now obtained the golden ticket to minimise your crypto tax bill. But there's more you can do. To make tax filing easier and ensure accurate compliance, consider using tools like Kryptos.

But why Kryptos, you may wonder?

1. Automated Reporting: Kryptos has automated reporting features that make it easy to compile your crypto transactions. This saves time and reduces the chance of errors in your tax documents.

2. Real-Time Insights: With Kryptos, you can get real-time insights into your crypto portfolio. This helps you plan your finances better and find opportunities to save on taxes.

3. Seamless Integration: Kryptos integrates smoothly with over 5000+ DeFi protocols, more than most other crypto tax softwares out there. This means all your transactions are accounted for, giving you a clear picture of your crypto activities. Plus, Kryptos offers 24x7 active customer support across 30+ jurisdictions.

Stay informed, Stay efficient, Stay complaint

As you begin your tax-saving journey, remember that knowledge is your greatest asset. Stay informed about the latest updates in crypto taxation, explore innovative tools like Kryptos, and take advantage of every opportunity to optimize your financial situation.

By combining the strategic insights gained in this guide with a tool like Kryptos in your arsenal, you're not just navigating crypto tax – you're conquering it. Here's to seamless tax filing, financial empowerment, and continued success in your crypto endeavors!

FAQs

1. How is crypto taxed in Norway, and why is it important for investors to understand the basics?

In Norway, crypto is classified as a capital asset rather than a currency. Income from crypto assets is taxed at a flat rate of 22%. It is important for investors to understand this infrastructure to deal with the complexities of crypto taxation and implement effective tax-saving strategies within the legal framework.

2. What are the key considerations for strategic timing of crypto transactions to optimize tax consequences?

Timing is important in crypto transactions to optimize tax consequences. Strategic timing, such as tax-loss harvesting, allows investors to recoup capital gains. In Norway, you can carry forward excess losses for up to 10 years, providing a powerful tool for tax planning and optimization.

3. What are the tax implications of typical non-taxable events, such as transfers between wallets, reporting lost or stolen crypto, and gifting or donating crypto?

Some cryptocurrency transactions are non-taxable. Transfers between wallets, reporting lost or stolen crypto (with a police report), and gifting or donating crypto can be tax-free if specific criteria are met. It is important to keep detailed records to support these events and ensure compliance

4. How can crypto investors comply with Norwegian tax laws, and why is it recommended to use a tool like Kryptos for seamless tax filing?

Maintaining compliance involves keeping careful records of all crypto transactions. It is advisable to seek professional advice from tax experts. Tools like Kryptos provide automated reporting, real-time insights, and seamless integration with multiple DeFi exchanges, simplifying the tax filing process and ensuring compliance with Norwegian tax laws.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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How to Report your Crypto Taxes in the USA

Are you ready to File your Crypto taxes? Then make sure you do it right. Learn what crypto tax forms you'll need and how to report your crypto activities to the IRS before April 15th.

Staring at your monitor wondering how to file your Crypto Taxes?

Don’t worry because we will be covering everything from IRS Schedule D to Form 8949 to Schedule 1, ensuring you're up-to-date with the latest requirements. And how you can generate Form 8949, Schedule D, and other necessary crypto tax forms using Kryptos.

Confidently report your cryptocurrency on taxes with Kryptos's easy-to-follow guide.

As the IRS keeps tabs on crypto transactions via exchanges and issues warnings, accurately reporting your crypto activities is vital. But which tax forms do you need for crypto? Let's have a look at the essential crypto tax forms that every U.S. crypto trader should be familiar with.

Important Note: The IRS expects American crypto investors to disclose their cryptocurrency transactions, including profits, losses, and earnings, by April 15th.

What IRS form is used for Crypto Transactions?

Form 8949: You'll need this if you've made capital gains or losses from selling crypto. It helps you report each disposal individually.

Schedule D: This form is for reporting your overall net gain or loss from crypto transactions.

Schedule C: If you're self-employed and earning income from crypto, you'll use this to report your total gross income and profits.

Schedule 1 (Form 1040): This is for anyone with extra income from crypto. You'll report your crypto earnings in Part 1, line 8.

The forms you require depend on your specific crypto investments and transactions. Typically, you'll use Form 8949, Schedule D, and Form 1040 for your capital gains and losses. If you're self-employed, you'll also use Schedule C or Schedule 1 (Form 1040) to report your crypto income. 

Let's go through each form step by step.

Step 1: Figure Out Your Crypto Capital Gain & Losses

Whenever you sell, trade, swap, or get rid of a digital currency, it counts as a taxable event for crypto. This means you either gain or lose money.

Your gains or losses from crypto can have a big impact on how much tax you owe now or in the future.

To calculate your gain or loss, you need to compare the value of the asset when you got rid of it to how much it cost you initially. The cost basis of an asset is what you paid for it, including any fees from exchanges or transactions.

Step 2: Report Crypto Short & Long-Term Capital Gains on Form 8949

  • First, fill out the details at the top of Form 8949. 
  • Then, in Part I for short-term trades, choose one of these options:
  • (a) If your short-term transactions are listed on Form(s) 1099-B, and the basis was reported to the IRS.
  • (b) If your short-term transactions are listed on Form(s) 1099-B, but the basis wasn't reported to the IRS.
  • (c) If your short-term transactions weren't listed on Form 1099-B.

Now, exchanges are required to give both you and the IRS Form 1099-B. If you received a 1099-B from your exchange, you'll pick option (a) or (b).If you didn't get a 1099-B, you'll likely choose option (c). But it's a good idea to check with your exchange about any missing 1099-B.Here’s an Example:Form 8949 is essential if you've made gains from cryptocurrency and need to report them on your federal tax return. It's an extra form you fill out alongside Schedule D of your 1040 form. This form helps you detail any times you've sold, swapped, or spent cryptocurrency.Every time you've done any of these things, you'll include these details:

  1. Column (a): Description of the asset, like 0.2 BTC.
  2. Column (b): When you got the asset, for example, September 25th, 2021.
  3. Column (c): When you got rid of the asset, like January 2nd, 2022.
  4. Column (d): How much you sold it for, at its fair market value. Say, $32,000.
  5. Column (e): The cost basis of the asset, also at its fair market value. For instance, $40,000 plus $10 in transaction fees.
  6. Column (f): Not Applicable.
  7. Column (g): Not Applicable.
  8. Column (h): Your gain or loss from the sale, like $8,010.

Before you start filling out the form, it's important to know that it's divided into two parts. The first part is for short-term disposals. These are assets you've held for less than a year before selling them, and they're taxed at your regular Income Tax rate.

The second part covers long-term disposals. This applies to assets held for more than a year before being sold. The tax rate for long-term disposals is generally lower compared to short-term ones. You can learn more about these tax rates in our US Crypto Tax Rate 2024 Guide.

For both sections, you'll need to calculate your total gains. This involves figuring out:

  • The total amount you received from selling your assets
  • The total cost of acquiring those assets
  • The overall gain or loss you made

You'll have to do this for both sections, covering both your short-term and long-term gains. Additionally, you'll need to tick a few boxes on this form that will match up with the Schedule D form later on.

For the first part, which deals with short-term gains, Select Box C depending on your situation.

For the second part, focusing on long-term gains, select box F based on your circumstances.

It's crucial to include every taxable crypto transaction in this report, including your losses. Remember, you can offset up to $3,000 of capital losses against your capital gains, which helps reduce your overall tax bill.

Once you've finished filling out Form 8949, you can move on to the next form, which is Schedule D (Form 1040).

Step 3: Report your Crypto Net Capital Gains in Schedule D

Schedule D (Form 1040) is the form where you'll report your overall net profit or loss from all your investments, including your crypto transactions, along with any gains or losses from businesses, estates, and trusts.

Similar to Form 8949, Schedule D is divided into three parts: one for your short-term capital gains and losses, another for your long-term capital gains and losses, and a summary.

For the first part (short-term gains and losses), you'll fill out either line 1a, 1b, 2, or 3. Just refer back to the box you checked in Form 8949.

Then, you'll need to fill in columns D, E, and H with the following details:

d) The total amount you received from selling your assets.

e) The total cost of acquiring those assets.

h) Your overall gain or loss.

Now, let's move on to completing the rest of part 1, focusing on your individual investments. But pay special attention to line 6, called short-term capital loss carryover. This part is crucial for all investors. Here, you'll report any capital losses you want to carry over. If you've already used up to $3,000 of capital losses to offset gains or your personal income, any additional losses should be reported here to carry forward.

Once you've taken care of that, go to line 7, where you'll report your overall net short-term capital gain or loss from all your investments.

Moving on to part 2, which deals with long-term capital gains and losses, fill in either line 8a, 8b, 9, or 10, depending on your circumstances. Just like before, refer back to the box you checked in Form 8949.

Then, make sure to complete columns D, E, and H with the following information:

d) The total amount you received from selling your assets.

e) The total cost of acquiring those assets.

h) Your total gain or loss.

Similarly to before, line 14 is where you'll report any long-term capital loss carryover.

Once you've completed this step, move on to line 15 to record your overall long-term net capital gain or loss.

Now, let's move to Part 3 (Summary).

On line 16, add together the totals from line 7 and line 15 and enter the result.

Instructions will differ from here depending on whether you have a net capital gain or a net capital loss.

You'll also need to fill lines 17 through 20 If you have a net capital gain.

Skip to line 21 If you have a net capital loss.

In either case, you'll need to report these figures on line 7 of Form 1040 (we'll discuss how to fill this out below).

Remember, you can only offset a maximum of $3,000 in net capital losses against your personal income or capital gains.

Step 4: Report your Crypto Income in Schedule 1(Form 1040)

Not all your crypto investments are treated as capital gains or losses. Sometimes, they're seen as income, similar to a paycheck or bonus. You can learn more about how the IRS views different crypto investments in our USA Crypto Tax Guide.

The form you'll use to report your crypto income could be either: Schedule 1 (Form 1040) or Schedule C (Form 1040)

Whether you need all these forms or not, depends on the kind of crypto transactions you've made. Let's have a closer look at each form.

IRS Schedule 1 (Form 1040): Crypto Income

When it comes to reporting your cryptocurrency earnings on your taxes, remember to include any income from airdrops, forks, bonuses, or crypto-related hobbies. You'll typically list these on Schedule 1 (Form 1040) under the category of 'other income'.

Look for this in part 1, line 8.

IRS Schedule C (Form 1040): Business 

If you're earning money from crypto as a self-employed individual, you'll use Schedule C (Form 1040) to report your crypto income. Even if you have a regular 9 to 5 job, you might still be considered self-employed if you've been running a crypto mining operation or similar activities on a significant scale.

If your crypto activities are aligned to those of a self-employed individual, you'll need to fill out Schedule C (Form 1040) and pay self-employment taxes. These taxes cover Medicare and Social Security, which are typically deducted from employee paychecks.

You'll report your total income and profit in part 1 of Schedule C. If your activities are deemed a business, you can also deduct related expenses, such as mining equipment, on line 30 of part 2 of Schedule C.

How to Report Crypto on Your Tax Return (Form 1040)

Finally, let's talk about Form 1040. This is the form you use to file your individual income taxes.

You'll need to include all the forms you've filled out with your Form 1040.

Then, on your Form 1040, you'll need to fill in these lines based on the information from your other forms:

On line 7, write down your net capital gain or loss from Schedule D.

On line 8, Report your other income from Schedule 1.

Please ensure to check the box that asks "At any time during 2023, did you (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"

Fill up the Form 1040 according to your personal situation. Once you've filled it out, you're all set! Just make sure to submit these forms to the IRS before April 15th.

Remember, US taxpayers must attach all these forms to their Individual Income Tax Return Schedule 1 (Form 1040) by April 15th.

How do I declare crypto on my tax return?

When it comes to calculating your crypto tax liability, using crypto tax software like Kryptos makes it incredibly easy. 

This user-friendly crypto tax software serves as a one-stop solution for calculating your tax liabilities and reporting crypto income without the headache of complex calculations.

Here’s how it works:

1. Import Your Transaction History: Begin by importing your crypto transaction history from various sources such as wallets, exchanges, or blockchains. Kryptos supports seamless integration from over 100+ wallets & exchanges and 50+ blockchains via API or CSV files, making it convenient to consolidate all your crypto transactions in one place.

 

2. Automated Calculations: Once you’ve imported your transaction history, Kryptos takes over to crunch the numbers. It automatically calculates your capital gains, losses, income, and expenses associated with your crypto investments. No need to manually sift through transactions or perform tedious calculations.

3. Access Tax Reports: Head over to the tax report page within your Kryptos account to access a comprehensive summary of your crypto taxes. Kryptos offers a variety of tax reports tailored to different locations and tax authorities, ensuring compliance with local regulations. For US investors, this includes essential reports like the IRS Report (Form 8949 and Schedule D), which details your capital gains and losses, saving you valuable time and effort.

4. Download and File: With your tax reports in hand, you’re all set to file your taxes. Kryptos allows you to download reports compatible with popular tax filing platforms such as TurboTax and TaxAct, streamlining the filing process further. Simply upload the generated report to your preferred tax application, and you’re good to go.

FAQs

1. What are the essential tax forms required for reporting cryptocurrency transactions in the USA?

The primary tax forms needed for reporting crypto transactions in the USA include Form 8949, Schedule D, Schedule C (if self-employed), and Schedule 1 (Form 1040). These forms help taxpayers accurately report their capital gains, losses, and income from cryptocurrency activities.

2. How do I report crypto capital gains and losses using Form 8949?

Form 8949 is crucial for reporting crypto capital gains and losses. You'll need to provide details such as asset description, acquisition and disposal dates, selling price, cost basis, and resulting gain or loss. The form is divided into sections for short-term and long-term disposals, each with specific instructions for reporting.

3. What is Schedule D (Form 1040) and how does it relate to crypto taxes?

Schedule D is where you report your overall net capital gains or losses from all investments, including crypto transactions. It comprises sections for short-term and long-term gains and losses, along with a summary. Taxpayers must fill out this form accurately based on the information provided in Form 8949.

4. When should I use Schedule 1 (Form 1040) for reporting crypto income?

Schedule 1 is used to report additional income sources, including cryptocurrency earnings. If you've received crypto from airdrops, forks, or bonuses, you'll report it under 'other income' in Part 1, line 8 of Schedule 1. Self-employed individuals earning through crypto activities will also use this form to report their income.

5. How can Kryptos simplify the process of reporting crypto taxes?

Kryptos is a user-friendly crypto tax software that streamlines the tax reporting process. By importing transaction history from over 100+ wallets, 100+ exchanges, 50+ blockchains, Kryptos automatically calculates capital gains, losses, income, and expenses. It generates tax reports like Form 8949 and Schedule D, tailored for US taxpayers, saving time and ensuring accurate reporting.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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All you need to Know About Crypto Winter

As of mid-January 2023, Bitcoin was down 75.64% from its all-time high of $64,800 in November 2021. Ethereum, the second in command of the crypto artillery was down 70.67% from its all-time high of  $4,878, pushing altcoins like Cardano, Polygon, Ripple, Litecoin, and Solana into a downward spiral. 

The market has been trading sideways since the start of 2022, and this is what experts call a crypto winter, where prices of crypto assets fall sharply and remain stagnant for years. The last crypto winter lasted 35 months starting in January 2018 and extending into November 2020, and the Russia-Ukraine conflict coupled with the FTX collapse might’ve pushed us right into another one.

Therefore, you must understand the intricacies of crypto winter and its implications on your portfolio. And while it appears to be doomsday on the surface, not everything is negative about crypto winters, if you understand it well, you can position yourself in a way that’s extremely profitable when the temperature rises.

What is Crypto Winter?

A crypto winter refers to a prolonged period of stagnant prices in the cryptocurrency market, initiated by a sharp decline in crypto prices followed by a sideways call usually initiated by a mix of political and economic factors, and a lack of investor interest. The figure below shows a BTC vs USD chart and you can see bitcoin trading in a sideways market.

                                              Credits: Tradingview

A prolonged crypto winter can wash out huge amounts of investor wealth and test the durability of smaller startups.

The origin of the term “crypto winter” is debatable. While some say that it’s the extension of the “long winter” from the popular HBO series “Game of Thrones” into the crypto space, others believe that the term is a metaphor taken from the traditional business cycle, which has its concept of an "economic winter".

The previous crypto winter was induced by China’s initial jibe at the crypto market and was prolonged by the fall of Terra Luna in June 2022. One important point to consider is that the term “winter” refers to a period in the market when the prices of crypto assets across the sphere are frozen and stay the same unless a string of positive events solicits a recovery.

Is crypto a risky asset?

Cryptocurrencies are backed by blockchains, a digitally native encrypted database. Now, unlike regular fiat currencies backed by physical assets, or shares backed by solid businesses bringing in billions of dollars in revenue. Which makes them more speculative and volatile than other asset classes.

Crypto is a comparatively new space with a shorter correlatable history to predict market movements and add that to the volatile nature of crypto assets and a huge influx of new projects, the risks involved with investing in crypto are most certainly higher than any other asset class.

One should invest in cryptocurrencies only after thoroughly analyzing the project fundamentals, founding members, and the prospects of the project. Also, investing a portion of your investments in stable coins or any other less volatile asset as a hedge against your investment in crypto assets is a smart move for any investor.

What are some advantages of a crypto winter?

Although the negative aspects of a crypto winter cannot be contented, there’s a positive aspect to crypto winters. It shakes off new businesses with weak fundamentals. It allows established businesses to prove their products/services in a tough landscape and uncovers hidden gems from under the rug.

The same goes for investors, the first ones to square off their positions in tough markets are investors with a weak resolve or shaky investment premise. Strong-willed investors with a long-term perspective and a well-rounded understanding of projects hold onto their assets while someone's exit liquidity offers them the opportunity to reposition their portfolio.

Here are some tips to make the most of crypto winters:

  • Look for bargains: Crypto winter is a good time to buy quality assets at a discounted price. 
  • Diversify your portfolio: Diversifying your portfolio across different coins and projects can help spread risk and reduce overall portfolio volatility.
  • HODL: HODL" means "hold on for dear life" and suggests holding assets during market downturns instead of panic selling.
  • Be patient: Crypto winter offers a good opportunity. However, the market may take time to recover, and investors should be prepared to wait for the market to rebound.
  • Have a long-term perspective: Crypto markets can be highly volatile, and prices can fluctuate dramatically in the short term, have a long-term perspective.

How is a crypto winter different from a bear market?

A bear market refers to a period or prolonged downward cycle where the price of a financial asset is consistently decreasing. A financial market is considered to be in a bear market when the market is down more than 20%, a number collectively decided by financial experts and investors across the globe.

Crypto winter and bear market are similar to each other in some aspects. Both signify a negative sentiment in their respective markets, fueled by a flurry of negative financial and socio-political events. 

However, they’re not the same. While stock prices consistently decrease during a bear market, token prices remain stagnant for prolonged periods. Crypto winters begin with a sharp downfall in prices and then freezes at a resistance point. Bear markets on the other end don’t have a bottom and asset prices continuously spiral downwards before a complete reversal.

Layoffs during the crypto winter

We saw a lot of new startups throughout the industry over the past year, and many of them will fail, If the market remains in contraction for long enough, it is not only poor companies that will suffer—but some great ones too” 

says Jake Weiner, founder, and CEO of Uncommon.

The crypto winter is like a recession for the crypto industry, startups fall, people lose their jobs, and projects collapse, throughout the cold wave. 

Here are some of the most notable layoffs where well-known crypto behemoths laid off thousands of employees.

  • In August 2022, Robinhood (HOOD) laid off 23% of its employees
  •  NFT marketplace OpenSea cut its staff by 20% in July 2022
  • Gemini laid off 10% of its workforce right around that time

What are some of the primary concerns regarding crypto winter?

Some of the primary concerns regarding a crypto winter include a decrease in the value of cryptocurrencies, a lack of overall market interest, and a decrease in the number of new investors entering the market.

Crypto as an industry is comparatively younger and less mature, any crypto winter could be its last, driving prices lower and lower leaving all tokens staring at the abyss. Of course, this is all purely speculative and addresses the concerns of investors in the worst-case scenario(which is highly unlikely).

A more rational concern towards crypto winters is the huge outflow or rather the lack of inflow of funds from venture capital groups that provide that operative and expansive scaffolding for the proliferation of the crypto industry.

How long will the crypto winter last?

There’s no fixed formula to predict the duration of a crypto winter. Some crypto winters have lasted for several months, while others have lasted for up to 3 years. The actual length of a crypto winter depends on a multitude of factors like regulatory changes, socio-political developments, and technological advancements.

The best way to survive a crypto winter is to have a long-term perspective and double down on projects that you truly believe in. Indeed, you can’t predict how long the crypto winter will last, however, by repositioning your investments, you can place yourself in a position of high leverage.

Read Also: India Works Towards Crypto Legalisation with 30% Tax

FAQs

1. When does Crypto Winter Start?

A crypto winter starts when there’s a sharp decline in the price of crypto assets, usually between 35-40% following an event or an announcement, and the overall sentiment of the investors turns negative towards the market, making it difficult for the market to recover, forcing it to stay range-bound for prolonged durations.

2. How long does a crypto winter last?

Although it’s difficult to predict exactly how long does a crypto winter last, as it is dependent on multiple factors like regulatory changes, social and political factors, and technological changes. If we extrapolate from past data, crypto winters can last for as short as 10-14 weeks, and as long as 2-3 years depending on how markets react to the environment.

3. How can I protect my investments during a crypto winter?

There are several strategies you can use to protect your investments during a crypto winter:

  • Diversify your portfolio: Spread your investments across different cryptocurrencies and assets to reduce your risk.
  • Have a long-term perspective: Remember that the crypto market is highly volatile and that short-term price fluctuations should not be the sole basis for your investment decisions.
  • Avoid FOMO and FUD: Do not make impulsive decisions based on fear of missing out or fear, uncertainty, and doubt.

4. How does the crypto winter affect the overall crypto industry?

A crypto winter can have a significant impact on the overall crypto industry. During a crypto winter, the value of cryptocurrencies typically decreases, leading to a decrease in market capitalization and trading volume. This can result in a decrease in investment and development in the crypto industry, as well as a decrease in the adoption of cryptocurrencies by businesses and individuals.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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How Much Energy is Bitcoin Consuming?

Bitcoin is often criticized for its high energy consumption. But what’s the actual consumption of energy in bitcoin? We did the research to find out.

One of the perceived drawbacks of cryptocurrencies is the energy requirement of mining and maintaining transactions of these cryptocurrencies. The premier cryptocurrency - Bitcoin is the biggest culprit for climate enthusiasts who intend to lay claim on the damaging effect of cryptocurrency on the environment. 

A lot of these claims exaggerate the energy that Bitcoin consumes; they exaggerate the general energy that cryptocurrencies use up. It is normal to hear carpet statements like “Bitcoin uses half of the entire energy consumption of five countries in Europe,” “Bitcoin uses more energy than Microsoft and Google put together.”  There was this article In the New York Times making the shocking claim that mining activities of Bitcoin and its energy usage requirements could cause the earth to warm by two degrees Celsius over the next few years. 

That report assumes that the supply of Bitcoin is infinite and that the computational power needed to mine more bitcoin would get higher over time. If this were the case, the energy required for mining additional bitcoin would increase over time and this will increase the temperature of the earth. However, the assumption doesn’t hold. By design, Bitcoin has a fixed amount and once it is reached, no new bitcoin will be mined. 

For context, Bitcoin consumes 79 terawatt-hours (TWh) of energy according to the Cambridge Bitcoin Energy Consumption Index (CBECI). It is quite some energy requirement, true. If we’re going to have this debate, however, we should be clear on how Bitcoin actually consumes energy. Understanding Bitcoin’s energy consumption can help to contextualize how much of an environmental impact Bitcoin is making. Specifically, there are a few key misconceptions worth addressing.

In this piece, we will take a look at the energy requirement of Bitcoin and how this compares to other major industries. It is a necessity to check through and be factual. While reading this, you need to keep an open mind and pay attention to the figures that will be presented. A shocker might just be in the offing for you. Let’s do this: 

How much energy does bitcoin consume compare to some other cryptocurrencies 

If there will be a comparison, it should start from within the industry. Bitcoin is a top-level crypto – that places it as a top feeder in the food chain. How does it compare against other cryptocurrencies within the space? 

In comparison to other coins; other top-ranking coins in the cryptocurrency space, Bitcoin is a top user of energy. According to Cryptoglobe, the Ethereum network, which has more functionality compared to Bitcoin as it allows users to issue smart contracts, consumes around 18.96 TWh of energy annually – which is about 25 percent of the power currently required by the Bitcoin blockchain. 

This important energy conservation is a result of Ethereum’s native token, Ether (ETH), being mined via the PoW (proof of work) protocol, however, transactions on Ethereum do not require as much energy to confirm as the Bitcoin network. With Ethereum making the move to upgrade to the Proof of stake system, it can drastically cut the energy required for each transaction. 

Ripple, another top-ranking cryptocurrency consumes way less power than Bitcoin and Ethereum as it uses a delegated proof-of-stake (DPoS) consensus mechanism. The protocol polls its network to validate account balances and transactions. If the majority agrees on the transaction's integrity, it gets the green light.  Ripple uses only 0.0051 TWh of energy annually – which is approximately 14,000  times less than Bitcoin according to TRG Data Centers


How much energy does bitcoin consume compared to the banking industry 

The use case of a lot of cryptocurrencies and indeed bitcoin dwells around the axis of open finance and revolution of the banking system as we know and understand it. If cryptocurrencies intend to reshape finance, it is important to look at how this novel means of sending, receiving, and storing money stacks up against the model we are used to already.

Galaxy Digital reports that the banking industry consumes 263.72 TWh per year. That’s huge, about two times what Bitcoin consumes. Gold is also another commodity that is backed by the bank and is often touted by a lot of experts as a better hedge than bitcoin. On the energy usage front, it does not match up either. Gold uses 240.61 TWh per year which is slightly lesser than the total for the banks but it is still outrageous. 

When viewed holistically, Bitcoin is much more advanced than the banking industry. It is a settlement layer, it is a store of value and also a medium of exchange. Not only does it have the capacity to replace the banks – it has the potential to replace what keeps the banks in business: Money. In essence, it is both the commodity and the system. Now, condense all of that, is it still consuming too much energy?  

How much energy does bitcoin consume compared to the manufacturing industry? 

The manufacturing industry is the highest consumer of energy In the world, no doubt. The industrial, or manufacturing, sector consumes 8.86 trillion kWh (41%) of the 21.6 kWh of electricity generated globally – more than any other sector. This is according to Oak Ridge Laboratories. Oh, and no one talks enough about the fact that about 30% of that energy goes to waste. This net wastage comes from net heat transfer loss, gas flaring, gas emissions amidst other industrial processes. Knowing that it is impossible to stop all forms of wastage, the manufacturing industry, however, can reduce the wastage considerably. 


Is Bitcoin worth it? 

No doubt, the  79 TWh that bitcoin consumes will weigh heavily on the heart of anyone who is a climate enthusiast but it is only one statistic out of many. To answer the question as to whether bitcoin is worth it or not, we need to look at where the power used is coming from. Fresh data from the Bitcoin Mining Council (BMC)  shows that  almost one-third of the network hash rate, is being powered by low-emission energy sources and the global Bitcoin mining is now estimated to receive 56% of its energy needs from sustainable sources (solar, wind, hydro, nuclear, geothermal and other “renewables”)

This information alone changes a lot. That means that when we ask, “Is Bitcoin worth its environmental impact,” the actual negative impact we’re talking about is likely a lot less alarming than you might think. No, this does not mean that bitcoin is absolved of all blames, this is just to straighten out the record. 

Answering the question of whether bitcoin is worth it or not is again going to be dependent on how you feel about the cryptocurrency. As the Harvard Business Review puts it, If you believe that Bitcoin offers no utility beyond serving as a Ponzi scheme or a device for money laundering, then it would only be logical to conclude that consuming any amount of energy is wasteful. If you are one of the tens of millions of individuals worldwide using it as a tool to escape monetary repression, inflation, or capital controls, you most likely think that the energy is extremely well spent. Whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society.

In the end, it comes down to our individuality and the statistics we choose to hold on to. But here are the facts. 


Featured image background: Ethereum, via coinmarketcap.com.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Kryptos Joins Hands With INATBA To Redefine Crypto Taxes

Kryptos becomes a member of INATBA, opening up opportunities to innovate in the crypto taxes space, and simplifying legal compliances for crypto investors

Kryptos becomes a member of the International Association for Trusted Blockchain Applications (INATBA) to redefine taxes in the crypto industry. This collaboration marks a big step towards evolving how crypto taxes are done today – simplifying it for the masses and promoting crypto adoption. 

Launched in 2019 by the European Commission, INATBA – International Association for Trusted Blockchain Applications, is a highly influential Association in advocating for Blockchain and DLT adoption in Europe and globally. INATBA is mainly known for its credibility with regulatory authorities and policymakers and is appraised for its contributions to Markets in Crypto Asset Regulation (MICA), Transfer of Funds Regulation (TFOR), electronic Identification, Authentication and Trust Services (eIDAS), CHAISE Project, EU Pact for Skills, Academic & Governmental Advisory Bodies, and its passionate diverse global community of CEOs, CTOs, Heads of Policy, Public/Institutional Relations, Legal, Marketing, Developers and Policymakers.

What Does Joining INATBA Mean For Kryptos?

Kryptos strives to bring crypto adoption to the masses and make crypto investors’ life stress-free. The application serves crypto investors, enterprises and public institutions with accounting, portfolio management and tax reporting services. Becoming a member of the INATBA means facilitation of their end goal while complying with evolving laws and regulations at all times.

Our membership reinforces the trust factor for Kryptos users as INATBA members are adhered to follow transparency and fair policies while building industry-leading applications.

"We are excited to welcome Kryptos as a member of INATBA. They are helping individuals and businesses navigate the complex world of crypto taxes and compliance, ultimately increasing transparency in the industry. We look forward to their continued engagement in the Finance Working Group on creating fair and effective taxation for public investment and services, while fostering a business environment in which innovation can thrive, " stated Ricardo Ricardo Simões. 

“It's an honor for Kryptos to join INATBA's esteemed community of organizations in the crypto tax space. The community expertise and support will help us build better for the crypto audience,” said Sukesh Kumar Tedla, Kryptos Founder and CEO. “Taxes have been one of the most complicated aspects of the crypto industry which intimidates many investors. We hope to simplify it for the masses while making sure everything complies with the laws. With INATBA, we look forward to building better solutions, simplify regulations and encouraging blockchain adoption.”

Earlier, Sukesh Kumar Tedla also co-founded Telos, a fast, scalable public blockchain network EVM focused on real-world use and adoption of web3. He is also the chairman and a board member of the Swedish Blockchain Association. As an expert working closely in the blockchain industry, he realized the complexity of the tax space which motivated him to build Kyptoskatt to simplify crypto taxation for the mass.

Being in the crypto tax space, Kryptos has always taken regulations and compliance seriously for crypto assets. Now, as a part of the INATBA community, Kryptos will be participating in shaping laws and regulatory policies for crypto taxes. This step comes as a potential for Kyptokskatt to help transform the blockchain industry meaningfully and fulfil its commitment towards crypto investors.

The Kryptos team will be working closely with industry experts in the forum to accelerate innovation in their application. Joining INATBA will also give Kryptos massive exposure to other community members or crypto investors in general who can benefit from the application. 

Kryptos has recently been selected as one of the finalists in the Binance Labs Incubation Program Season 5 for its promising innovation in the crypto space. To know all their latest updates, follow Kryptos on Twitter, and Linkedin.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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All You Need To Know About The Term - Crypto Tax Evasion

The term “Tax evasion” has been repeatedly associated with cryptocurrencies, the allegations going as far as to claim that tax evasion and money laundering are the only genuine use cases of cryptocurrencies.

However, that’s far from reality, the legitimacy of cryptocurrencies has been verified by real-world applications like DeFi, a massive online financial infrastructure that runs parallel to the physical network of banks and other financial institutions and operates at a similar scale within a decade of inception.

Crypto as an asset is new, and the regulations around it are precarious at best, which leads to a lot of confusion, with crypto taxes leading the conversation from the forefront. And this is one of the biggest reasons why people end up with unintentional tax evasion and tax fraud. A lot of people end up evading taxes because they’re simply unaware of the intricacies of crypto taxes, tax evasion, and the regulations around them. 

So here’s a detailed primer on crypto tax evasion. By the time you reach the end of this extract, you’ll know enough about tax evasion to not fall into it unintentionally. 

Ok, so let’s set the groundwork for this conversation by answering the most basic question.

What is crypto tax evasion?

Crypto tax evasion refers to the illegal non-payment or underpayment of taxes on income generated through transactions involving cryptocurrencies. 

This can include failing to report income from cryptocurrency trading, mining, or other activities, as well as failing to pay taxes on capital gains from the sale of cryptocurrencies. It is important to note that while it is illegal to evade taxes, it is legal to reduce your tax liability through legitimate means such as tax deductions and credits.

Now, tax evasion may be intentional or unintentional, however, if you’ve bought, sold, traded, or have been gifted crypto in the past and fail to report these transactions in your tax report, the IRS will likely take interest.

Understanding Crypto Tax Evasion

The IRS categorizes crypto tax evasion into two sections:

  1. Evasion of payment
  2. Evasion of assessment

Let’s understand them one at a time.

Evasion of payment

Evasion of payment occurs when someone decides to conceal the possession of assets or funds while the tax assessment is being conducted to avoid paying taxes on those assets or funds. 

However, this kind of fraud is barely seen in the crypto space because it’s nearly impossible to conceal assets from the IRS after implementing the Form-1099 issued by crypto exchanges to report all customer transactions to authorities.

Evasion of Assessment

Evasion of assessment refers to the wilful underreporting of transactions or intentional overstatement of deductions to reduce tax liabilities to the IRS. This is the most common type of crypto tax evasion tactic used by wrong-doers to pay fewer taxes. The IRS is extremely cautious of such tax frauds and has released a comprehensive list of transactions that will be counted as evasion of assessment. 

If you have participated in any of the transactions given below, it will be counted as an evasion of assessment by the IRS.

  • Failing to report the capital gains from the sale or disposal of cryptocurrency
  • Underreporting income from disposal of crypto assets
  • Failing to report additional income from crypto assets received as gifts, airdrops, or staking rewards
  • Failing to report crypto income from business operations
  • Failing to report wages earned in crypto assets

What if you don’t report crypto transactions on your tax returns?

All crypto transactions are traceable because they’ve been recorded on the blockchain, sure they appear as anonymous transactions on the ledger, however, it’s just a matter of correlating those transactions with your wallet address and the KYC details with crypto exchanges(that is already shared with the IRS) to uncover your identity. Now, in case you decide to underreport crypto transactions intentionally or unintentionally, the discrepancies are immediately evident and you end up with trouble.

According to I.R.C §7206, any individual who fails to report their taxable income in their tax report can face fines of up to $100,000 and a maximum sentence of three years in prison. On the other hand, an individual found to be evading taxes could face a fine of $250,000 and up to five years in prison

Why is Crypto Tax Reporting a Challenging Task?

According to a study conducted by CoinLedger in 2021, 25% of the investors who didn’t report cryptocurrency on their taxes simply weren’t aware that crypto was taxable. Now, this is an important statistic to uncover the fact that a huge majority of people who end up under the lens of the IRS for tax evasion, simply lack awareness. Partly, because a majority of crypto investors are young and unaware of the tax obligations that crypto transactions entail. 

Here are some other reasons why people fail to report their crypto taxes:

Lack of clarity on the nature of crypto transactions

The expansion of the crypto-verse was rapid, the pace was so magnificent that neither regulators nor investors could keep up with it. Crypto verticals like DeFi grew to a multi-billion dollar market within a few years. With over $41 billion worth of assets locked in DeFi as of December 2022, the IRS is yet to offer clarity on the taxation of DeFi transactions in the US.

The lack of clarity on these transaction types inadvertently leads to underreporting of transactions and unintentional tax evasion or tax reports as reported by the IRS.

NFT transactions were in a similar space up until November 2022, when the IRS added instructions on how NFT transactions will be taxed under the “digital assets” section of the new tax filing guide released on December 19, 2022.

Lack of tools to track transactions

Back when Satoshi Nakamoto facilitated the mining of Bitcoin’s genesis block and the world’s first cryptocurrency was born, nobody had a clue that the crypto space would one day be home to 14,000 different tokens. There were no specialized tools to monitor and track crypto transactions.

Also, crypto was barely regulated, and there were no laws mandating the taxation of such transactions, so people had no incentive to track them. Those who were smart enough to predict the mass adoption of cryptocurrencies as a concept maintained a ledger of these transactions on excel sheets. And these ledgers were as accurate as humans can be. 

Thankfully, the world has accepted the legitimacy of crypto as a concept and the tools have transformed to accommodate the requirements of investors. Modern crypto tax software like Kryptos can create legally compliant tax reports within seconds based on your location, by auto-fetching your transaction details from all your wallets and exchanges. All you need to do is add your wallets and exchange profiles on the website and you’re done.

How the IRS is Fighting Crypto Tax Evasion?

The IRS is fighting crypto tax evasion on multiple fronts:

  1. It has mandated the use of Form 1099 for all major crypto exchanges in the country, every time an investor fills out form 1099 sent by their respective exchange, the details are reported to the IRS.
  1. The IRS is consistently adding resources to fight crypto tax evasion in the US. The proposed Inflation Reduction Act of 2022, would allocate an additional $80 billion in funding to the IRS, with a portion of those funds earmarked for preventing tax violations related to cryptocurrency.
  1. Earlier in 2022, the IRS announced the hiring of 87,000 additional agents for 2023, with a focus on enforcing taxes related to cryptocurrency and reducing tax evasion. These agents will be trained in identifying and matching blockchain transactions to anonymous wallets for the 2023 tax returns
  1. Jim Lee, the head of the IRS Criminal Investigation Division, confirmed in November 2022 that the agency is in the process of building a significant number of cases related to crypto tax evasion and plans to make them public shortly.

Read Also: How to Avoid/Tips to Avoid Scammed

What if you’ve avoided crypto taxes in the past?

If you’ve unintentionally avoided crypto taxes in the past, don’t worry it can still be fixed. Use tax software to make a list of all unreported or forgotten transactions and then use Form 1040X to amend your tax report. You should hear from the IRS within 8-12 weeks of returning your form to the IRS.

Alternatively, if you’ve been formally notified by the IRS under tax evasion laws, you can use Form 14457 called the Voluntary Disclosure Practice Preclearance Request and Application which allows people to report previously unreported transactions to the IRS, even if they are facing criminal prosecution for violating tax laws.

If you have failed to pay or report taxes related to cryptocurrency in the past, making a voluntary disclosure to the IRS may help you avoid criminal prosecution. This involves cooperating with the IRS and paying any taxes owed in full. However, it is important to note that this option is only available if the IRS has not already begun an investigation.

FAQs

1. What happens if you evade tax?

If you evade taxes in the US, you may face penalties and fines, and in severe cases, criminal charges and imprisonment. The specific consequences depend on the circumstances of the evasion and the amount of taxes owed. It is important to comply with tax laws and file accurate returns to avoid potential legal issues.

2. What is tax fraud?

Tax fraud is the illegal act of intentionally providing false information on a tax return to pay less in taxes or receive a larger refund than is legally owed. Tax fraud can include underreporting income, claiming false deductions or credits, and failing to report all income. Tax fraud is a federal crime in the United States and can result in fines, penalties, and even imprisonment.

3. What is the difference between tax fraud and tax evasion?

Tax fraud and tax evasion are both illegal acts related to taxes, but they involve slightly different behaviors.

  • Tax fraud refers to the intentional act of providing false information on a tax return to pay less in taxes or receive a larger refund than is legally owed. Examples of tax fraud include underreporting income, claiming false deductions or credits, and failing to report all income.
  • Tax evasion, on the other hand, refers to the illegal non-payment or underpayment of taxes. Tax evasion can include not reporting all income, claiming false deductions or credits, or failing to file a tax return. It can be done by individuals, partnerships, or corporations.

4. Why crypto tax evasion isn’t easy?

Cryptocurrency tax evasion is not easy for several reasons:

  • Transparency: Cryptocurrency transactions are recorded on a public ledger, which makes them transparent and traceable.
  • Reporting requirements: The IRS and other tax agencies require cryptocurrency exchanges and other service providers to report certain transactions to them. 
  • Legal requirements: The IRS and other tax agencies have issued guidance on how to report cryptocurrency transactions for tax purposes. 
  • Increased enforcement: As cryptocurrency becomes more mainstream, tax agencies are paying more attention to it.
  • Lack of understanding: Many individuals may not be aware of the tax implications of their cryptocurrency transactions, and may accidentally evade taxes without realizing it.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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The Ultimate Guide To Crypto Margin Trading And How It Is Taxed

Unlock the power of margin trading with our comprehensive guide. Learn about the top exchanges, tax implications of margin trading, and strategies for maximising your returns.

Wondering how crypto margin trading can amplify your purchasing power up to 100 times? Or, how will your profits be taxed? What about the losses and risks? Well, this article answers all your doubts and more. 

Whether you are looking for insights on margin trading or want to know about the tax implications on the profit that you just made, this guide has everything that you need to know about crypto margin trading.

What Is Crypto Margin Trading?

Crypto margin trading is the process where you borrow funds from exchanges or a broker to trade cryptocurrencies. Once you have earned the desired profits, you pay back the borrowed amount including a minimal interest. 

In this trading method, you use “leverage” to trade a larger position than your actual investment, which can amplify the returns. To use margin trading, you need to pledge collateral to the exchange you are borrowing from. 

For instance, if you own ETH worth $4000 and want to margin trade from an exchange platform offering 50x leverage, you can deposit $4000 of your ETH to access $200000 funds.

However, it's important to keep in mind that this practice also increases the risk involved. If the trade goes against your expectations, you could end up owing more money than the initial investment.

What Is Leverage?

We just talked about how you can use “leverage” for amplified returns on your trade. But what exactly do we mean by this term?

In crypto margin trading, leverage refers to the ability to multiply your initial trading investment by borrowing additional funds from a broker. For example, a leverage of x5 means for every 10$ of your investment, you can trade 5 times the amount, i.e. 50$.

Leverage is expressed as a ratio of your actual investment capacity and the increased investment capacity. If we take the previous example, the leverage ratio will be 1:5.

While margin and leverage may sound similar, they are in fact inversely related. This means the higher the margin, the lower the leverage. 

You can calculate this with a simple equation:

Leverage = 1/Margin Requirement

Where margin requirement is the percentage of the deposit you need to make to use the leverage.

Here’s An Example Of Crypto Margin Trading…

Suppose you have $4000 in your margin account and you want to invest in BTC. If you now trade at 50x leverage, your purchasing power increases to $20000. 

The $4000 deposit you need to make to open the position is called the “required margin”. You can calculate the “margin requirement” as (4000 / 20000) x 100 which equals 2%.

Now you can purchase $200000 worth of BTC with a deposit of only $4000. If the market moves up by 2%, you make a profit of 100% on your margin (+$4000). However, if the reverse happens, you lose your initial investment and no longer meet the exchange’s margin requirement. In this case, your collateral could be liquidated.

How Does Cryptocurrency Margin Trading Work?

Crypto margin trading can increase your exposure to the market beyond the funds you have on hand, which can amplify both gains and losses.

Here's how it works:

  1. You open a margin trading account with an exchange or a broker that offers margin trading services.
  2. You select the cryptocurrency you want to trade and decide on the amount of leverage. For example, if you have $1,000 in your account and use 5x leverage, you would have $5,000 in buying power.
  3. Now, you place an order to buy or sell a cryptocurrency using borrowed funds.
  4. The price of the cryptocurrency then moves up or down, and you either make a profit or incur a loss.
  5. You then close the position by selling the cryptocurrency or buying it back to repay the borrowed funds, including any interest charged by the broker.

Short Margin Trading vs Long Margin Trading

Short margin trading in cryptocurrency refers to a trading strategy where you borrow funds to sell a crypto with the hope of buying it back later at a lower price. If the price actually falls, you can then buy the cryptocurrency back and repay the loan, keeping the difference as profit. However, if the price rises, you incur a loss as now you will have to buy back the cryptocurrency at a higher price to repay the loan.

Long margin trading is when you borrow funds to purchase a cryptocurrency at a lower price with the hope of selling it later for more. If the price rises, you earn the difference amount as profit. However, if the reverse happens, you may lose all your investment. 

How Is Crypto Margin Trading Taxed?

Before you learn more about the taxation of margin trading in crypto, here are a few trading terms that you should be familiar with.

  • Leverage: This refers to the amount by which you can multiply your purchasing power with a margin. The higher the leverage offered by the exchange, the lower the margin you need for the same trade.
  • Collateral: This is the asset (in this case cryptocurrency) you need to deposit as a security to borrow funds from the exchanges. Depositing collateral for a crypto loan is considered a non-taxable event.
  • Fees: Any fees paid during the margin trading including transaction fees, and interest paid can be added to your asset’s cost basis.
  • Liquidation: If you lose the trade and do not meet the minimum margin trading requirements of the exchange platform, your collateral could be liquidated. This is considered a disposal and is subject to capital gains tax. Depending on how the price of your asset has changed since the time you first purchased it, you may incur a gain or loss.
  • Gains and Losses: Any gains made using the borrowed funds are subject to capital gains tax. If you make a loss in margin trade, you should report it as a capital loss which can be used to offset your gains.

The taxation of crypto margin trading depends on your jurisdiction and can vary across countries as follows:

Crypto Margin Trading Tax In the US

In the United States, the IRS considers cryptocurrencies as a “property” for tax purposes. This means any gains or losses from trading cryptocurrencies are subject to capital gains tax. To learn more about US capital gains tax, refer to this guide.

Crypto Margin Trading Tax In UK

While the HMRC has no clear guidelines for crypto margin trading tax, any gains or losses made from the trade may potentially be subject to capital gains tax for individuals and income tax for businesses. To see the UK crypto tax rules, refer to this guide. 

Crypto Margin Trading Tax In Canada

Similar to HMRC, the CRA does not have any guidelines on crypto margin trading tax but with other crypto tax implications, there’s a potential that the gains or losses made from the trade may be treated as capital gains tax for individuals and income tax for businesses.

Crypto Margin Trading Tax In Australia

In Australia, the taxation of cryptocurrency margin trading profits are treated similarly to other forms of investment income. The ATO considers cryptocurrencies to be a form of property, and any profits made from buying and selling cryptocurrencies, including those made through margin trading, are subject to capital gains tax for individuals and income tax for businesses. To learn more, refer to the  Australian crypto tax guide.

What Are The Best Crypto Margin Trading Exchanges?

With multiple exchanges offering you as high as x100 leverage and appealing features, it may get hard to choose the best option for your margin trade. 

Here’s the list of the best crypto margin trading exchanges that you can consider:

  • Binance: As the world’s biggest crypto exchange by trading volume and with the highest liquidity in the market, Binance is easily one of the best platforms for crypto marding trading.  It provides 600+ trading pairs, supports both short and long position with up to 20x leverage, and even provide insurance funds to protect the platform’s liquidity in all cases.
  • Bybit: With more than 10 million registered users, Bybit is an easy-to-use, user-centric exchange platform that provides up to 100x leverage on margin trading. It also has insurance funds to recover losses in case the users are not able to pay them back.
  • Kraken: With 5x leverage and low fees, Kraken is a great option for US residents looking for margin trading in crypto. It is one of the few exchanges offering margin trading that is licensed within the US.
  • CEX: It is one of the oldest exchanges available in the market and is registered with FinCEN. It currently offers up to 10x leverage for crypto margin trading.

How Can Crypto Tax Software Help?

Crypto margin trading tax can quickly get complicated with multiple trades in place and variable country laws. Using a crypto tax software like Kryptoksatt can take the tax hassle out of the picture and you can completely focus on your trades. 

From importing your crypto transaction history to generating tax reports that comply with your current local laws, Kryptos does all the hours of work in a matter of minutes. It even ensures there are no errors in calculations and you are able to benefit from applicable tax-saving strategies. 

Calculate Taxes For Free Today

FAQs

1. How is crypto margin trading taxed?

Crypto margin trading tax depends on the country you are located in. In countries like the US, the profits or loss made from margin trade is subject to capital gains tax. In countries including the UK, Canada, and Australia, gains/losses made from margin trading is subject to capital gains tax for individuals and income tax for businesses.

2. What is shorting in crypto?

Shorting refers to a crypto margin trading strategy where you sell a cryptocurrency at a higher price in the hope to buy it back at a lower price. 

3. How can I calculate and report my margin trading gains? 

To calculate your margin trading gains, you need to calculate your asset’s cost basis which is the initial price at the time of purchase and includes any added fees. Now subtract the cost basis from the overall gross proceeds to find your capital gains. 

4. What are the best crypto margin trading exchanges?

Some of the best crypto margin trading exchanges include Binance, Bybit, and Kraken.

5. How Does Margin Trading Work?

In margin trading, you borrow funds from an exchange or broker to increase your purchasing power than what you originally have. To do this, you need to keep a collateral in the exchange’s account. Depending on the leverage they provide, you can now trade up to 100 times more than your original investment.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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The Ultimate Guide to Canadian Tax Brackets 2023

Learn everything you need to know about the Canadian tax brackets 2023, including federal and provincial tax rates, for your investments like stocks, crypto, or any other property.

Figuring out the right Canadian tax bracket for your tax calculations can be tricky. Variable tax rates for different provinces only add to the complexity.

This makes it important to understand the federal and provincial tax brackets, so you can track your exact tax liability and ensure a smooth tax filing experience.

In this guide, we discuss all the Canadian tax brackets for your investments including stocks, crypto or any other property, for the tax years 2022 and 2023, helping you navigate the tax season with ease.

What Are Canadian Tax Brackets?

It is the “income range” that decides the tax rate on your taxable income. The federal government and each province or territory have their own tax brackets, which are applied to your taxable income.

Once you have figured out your taxable income (e.g. your income minus all deductions), calculate your federal income tax first and then your provincial tax. Now, add both of these taxes to find your total tax liability.

Types Of Canada Tax Rate 2023

To calculate the income tax, Canadian taxpayers need to know about two tax rates – the federal tax rate and the provincial tax rate. While the federal tax rate is a marginal tax rate constant for all Canadian taxpayers, your provincial tax rate depends on where you live.

Canada Income Tax Allowance

If you are employed and need to pay both federal and provincial tax, you can claim a deduction of up to $14398 of your taxable income, which will increase to $15000 from 2023. This is the allocated personal tax allowance by the CRA known as the basic personal amount (BPA).

When Do You Have To Pay Capital Gains Tax In Canada?

Any profits you make from disposing of your investments including stocks, crypto, or any other property are considered capital gains for individuals. The CRA explains that you do not have to pay taxes on 100% of your profits if you are an individual – you only pay tax on half of your net capital gains for a given tax year.

However, if the disposing of your investment is seen as part of a business by the CRA, the profits you make on the disposition or sale are considered business income and not capital gain.  

In this case, you have to pay taxes on 100% of your profits. The business income tax rate remains the same as the federal tax rate and provincial tax rate.

How Does It Apply For Crypto?

You may be subject to crypto capital gains taxes in the following disposal cases:

  • Selling your crypto for fiat
  • Trading your crypto for another crypto
  • Spending your crypto for purchasing goods or services
  • Gifting your crypto

Some common taxable business income examples include:

Also read: Canada Crypto Tax Guide 2023

The capital gains or business income tax rate is the same as the federal tax rate and provincial and territorial tax rates

Canadian Federal Tax Brackets 2023

Here are the federal tax rates in Canada for the tax years 2022 and 2023.

Canadian Provincial Tax Brackets 2023

Each province and territory in Canada has its own tax brackets, which are combined with the federal tax brackets to calculate your overall tax rate. 

Let’s look at the tax brackets for each region in detail.

Nova Scotia Tax Brackets 2023

Manitoba Tax Brackets 2023

British Columbia BC Tax Brackets 2023

Alberta Tax Brackets 2023

Newfoundland & Labrador Tax Brackets 2023

New Brunswick Tax Brackets 2023

Prince Edward Island Tax Brackets 2023

Saskatchewan Tax Brackets 2023

Nunavut Tax Brackets 2023

Yukon Tax Brackets 2023

Ontario Tax Brackets 2023

Northwest Territories Tax Brackets 2023

Quebec Tax Brackets 2023

When to file taxes in Canada

In Canada, the tax year aligns with the calendar year, commencing on January 1st and concluding on December 31st. Canadian citizens should be aware that the reporting of cryptocurrency-related income, capital gains, and losses must be conveyed to the CRA by April 30th, 2023.

In the event that the deadline falls on a weekend, taxpayers are granted an extension until May 1st, 2023, to fulfil this obligation. It is highly recommended to avoid delaying this matter, as individuals have the freedom to commence the submission of their tax returns by the end of February.

Please note that your tax payment will be considered timely only if it is received or processed by the CRA on or before May 1st each year.

How to Calculate Crypto Tax in Canada?

Crypto tax for all provinces and territories in Canada (except Quebec) is calculated the same way as the federal tax.

Form 428 is used to calculate your provincial or territorial tax. Provincial or territorial non-refundable tax credits are also calculated on Form 428. You can also easily calculate your crypto taxes using Kryptos in just a few minutes.

All you need to do is connect your wallet to the platform – the app auto-syncs all your transaction history, auto-detecting the taxable events, the tax rates, and even any deductions that you can claim to save taxes. Once done, generate the tax report that you need to file your crypto tax in Canada as per the CRA. 

FAQs

1. Do you get taxed on crypto in Canada?

Yes, in Canada, cryptocurrency transactions are subject to taxation. The Canada Revenue Agency (CRA) treats cryptocurrency as a commodity for income tax purposes.

2. How is crypto taxed in Canada?

Here's a brief overview of how cryptocurrency is taxed in Canada:

  • Capital Gains: If you sell or "dispose" of cryptocurrency for more than you acquired it for, you may have a taxable capital gain. 
  • Income from Mining: If you mine cryptocurrency, the CRA may consider it a business activity or a hobby which must be included in your income for tax purposes. 
  • Income from Trading: If you trade cryptocurrencies frequently, the CRA might consider this activity as running a business, and any profits or losses from this trading would be considered as business income or loss.
  • Using Cryptocurrency for Goods/Services: If you use cryptocurrency to purchase goods or services, the CRA considers this a barter transaction. The value of the goods or services obtained must be included in your income.

3. What is the Canada tax bracket?

Canadian tax bracket is the “income range” that decides the tax rate on your taxable income. The federal government and each province or territory have their own tax brackets, which are applied to your taxable income.

4. How do I determine which tax bracket I fall under as a Canadian investor?

To determine your Canadian tax bracket, calculate your total taxable income by adding all sources of income, including your capital gains, and claiming all the deductions. Then, refer to the federal and provincial tax brackets to identify where your taxable income falls within the given ranges.

5. Are there any tax breaks available in Canada?

If you are employed and need to pay both federal and provincial tax, you get a personal tax allowance of up to $14398 of your taxable income, which will increase to $15000 from 2023. You can also offset their capital gains with capital losses incurred during the tax year.

6. What are the different Canadian tax brackets?

The federal tax brackets range from 15% to 33%, and provincial tax brackets vary depending on the province or territory of the crypto trader. These brackets are applied to the capital gains or business income from cryptocurrency trading to calculate the taxes.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Crypto Donations in Times of Instability

In times of instability, it's essential to support the causes you believe in. But what if you don't have the money to spare? You can still help out by cryptocurrency donation.

  • Ukraine has received around $37 million in Crypto Donations for the war, and has so far spent $15 million on different military supplies
  • Crypto payment processor Coingate and IBS (International Business Settlement have begun an arrangement with NBU (National Bank of Ukraine), to give people the ability to donate to Ukraine via more than 70 different crypto assets.
  • Coingate executive Matas Kibildis, is quoted in a report where he explains how the importance of Cryptocurrency has proven itself:
  • “The fact that any person or private company can easily do cross-border decentralized-system donations to countries facing conflicts is truly mesmerizing and one of the big reasons why the community is actively supporting Ukraine.” (Source: news.bitcoin.com)
  • If you too want to donate Crypto for the cause, please scroll down to see pictures of confirmed wallet addresses posted by the official Ukrainian twitter and Vice Prime Minister of Ukraine Mykhailo Fedorov

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Tax Rules For Crypto Futures And Options Trading

How to trade crypto futures and options? What are the tax rules? Our guide covers all the basics of these trades and the tax implications of your crypto futures and options trading

Understanding the tax rules for crypto trading is crucial if you want to avoid any potential penalties from the Internal Revenue Service (IRS). Properly reporting your crypto trades can help you reduce your tax liabilities and avoid any unwanted surprises during tax season.

In this article, we discuss everything you need to know about crypto futures and options trading, how they are taxed in the USA, and answer some of the most frequently asked questions.

What Is Crypto Futures And Options Trading?

Crypto futures trading involves a predetermined contract that allows the trader to buy or sell a crypto asset at a predetermined price, anytime during the lifetime of the contract. 

Crypto options trading is a predetermined trade between a buyer and a seller that obligates a buyer to buy a specific amount of cryptocurrency (and the seller to deliver it) at a predetermined price and future date. The right to buy the asset is called the 'call' option, and the right to sell is called the 'put' option.

Tax Implications Of Crypto Options Trading

In the USA, the tax treatment of crypto options trading is similar to that of stock options trading. You are subject to crypto tax when you:

  • Exercise the options contract to buy or sell crypto
  • Sell the options
  • The options contract expires. 

If you are a buyer, here are a few taxable events to consider:

  • If you hold an options contract and it expires, the cost basis is considered zero, and you can deduct the premium you paid during the purchase of the contract as a capital loss. 
  • If you exercise the options contract, the difference between the strike price (the predetermined price at which you buy or sell) and the fair market value of the cryptocurrency at the time of trade is considered a capital gain or loss.
  • If you sell the options before expiration, the difference between the sale price and the cost basis (i.e., the price at which you bought the options) is considered a capital gain or loss.

If you hold the cryptocurrency for more than one year, any profit from exercising the options or selling the contract is considered long-term capital gains, and the tax rate is 0%, 15%, or 20% depending on your taxable income. 

In case you hold the crypto for less than 12 months, the gains are considered short-term capital gains, and the tax rate is the same as your ordinary income.

Wash Sale Rules

Wash sale rule means that if you realize a loss on some of your assets, you can not implement your “call” option to buy back the same assets (for both the same or different options) within 30 days. 

If you do so, the losses from the sale, along with the call premium will be added to the cost basis of the assets bought. In case you buy the same asset under different options, the loss is added to the premium of the call. 

While this is applicable for other investments like stocks, crypto is currently exempted from this rule. 

Tax Implications Of Crypto Futures Trading

Similar to options trading, any profit or loss made from crypto futures trading are treated as capital gains or losses which are subject to taxes. It is only when you close the contract that you incur a capital gains tax or realize a capital loss.

As per IRS, if the futures contract under Section 1256 produces a capital gain or loss, and the gains or losses open at the end of the year or terminated during the year, it is subject to a 60% long-term and 40% short-term tax rate, regardless of how long the contract was held. No wash-sale rule is applicable in this case. 

This means if you report $10000 capital gains in futures trading with a total taxable income of $3,00,000 — $6000 of your profit will be subject to a 15% long-term capital gains tax rate and $4000 will fall under short-term capital gains tax.

You are allowed to carry back your losses for up to three years, with the losses carried back for the earliest year first and then the remaining carried to the next years. This is applied under the condition that the losses carried back should not exceed the net gains of that specific year.

How Can Kryptos Help With Crypto F&O Trading Taxes?

Whether you are trading in futures or options, Kryptos can help calculate all your tax liabilities in a matter of minutes. You do not have to manually keep track of your trading history or figure out the applicable tax rates. 

Simply import your transactions in the Kryptos app and the platform automatically:

  • Tracks your transactions and the crypto’s fair market value during the time of the transaction in your currency 
  • Figures our taxable transactions and calculates all the applicable crypto taxes
  • Finds out any tax-saving opportunities and apply it automatically 
  • Generate tax reports that comply with IRS laws

Ready to get started? Sign Up Now.

FAQs

1. What is the tax rate of future trading?

Future trading is subject to a 60% long-term tax and 40% short-term tax on any capital gains made, regardless of how long the contract was held. The long-term capital gains rate is 0%, 15%, or 20% depending on your income bracket and the short-term capital gains rate is the same as your ordinary income tax.

2. Is trading in futures and options taxable?

Yes, crypto trading in futures and options is subject to tax in the United States. As with other investments, the gains and losses from trading crypto futures and options must be reported on your income tax return.

3. How do you tax income from futures and options?

The IRS treats cryptocurrencies as property for tax purposes, so the general rules for futures and options taxations apply to crypto as well. Future trading is subject to a 60% long-term tax and 40% short-term tax on any capital gains made, regardless of how long the contract was held. 

For options trading, if you hold the cryptocurrency for more than one year, any profit from exercising the options or selling the contract is considered long-term capital gains. In case you hold the crypto for less than 12 months, the gains are considered short-term capital gains. 

The long-term capital gains rate is 0%, 15%, or 20% depending on your income bracket and the short-term capital gains rate is the same as your ordinary income tax.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Your Ultimate Guide To Crypto Mixers | Kryptos

Crypto or Bitcoin mixer, also called a crypto tumbler, is a service to mix your cryptocurrency with other users to increase the anonymity of the transactions

Many crypto users believe that crypto transactions are anonymous. However, these transactions can be easily traced on the blockchain if extra measures are not taken to maintain anonymity. 

One way to do this is by using crypto mixers. In this blog, we'll discuss everything you need to know about a cryptocurrency mixer and share some of the top Bitcoin and crypto mixers you can start using today. 

What Is A Crypto Mixer?

Crypto mixers, also known as crypto tumbler, are online services that enable users to anonymize their cryptocurrency transactions. The basic idea is to mix your coins with the coins of other users to conceal the transaction trail. This makes it difficult for any third party to trace the transaction back to the original sender.

There are two main types of crypto mixers – centralized and decentralized mixers – both work differently from each other.

  1. centralized mixers: These mixers are run by a single entity and involve a central server to pool funds from different crypto users. The funds are then divided into different wallets from where they are sent out to your intender receiver. Examples include Yo!Mix and Mixtura
  2. Decentralized mixers: These work similar to centralized mixers but instead of a central server, a network of users carries out the mixing process. For example, JoinMarket is a popular decentralized mixer for crypto users.

How Do Crypto Mixers Work?

Crypto mixers are designed to enhance privacy and anonymity by mixing users' coins with others. Here’s how they do this:

  1. The user sends their cryptocurrency to the mixer's address: The first step is to send your cryptocurrency to the mixer's address. This could be Bitcoin, Ethereum, or any other supported cryptocurrency.
  2. The mixer pools the cryptocurrency with other users' coins: Once the mixer receives your cryptocurrency, it is added to a pool of coins belonging to multiple users who are also using the mixer at the same time. 
  3. The mixer sends the mixed cryptocurrency to the intender receivers: The mixer then sends the mixed cryptocurrency to the receivers’ wallets in multiple transactions, usually through different addresses. 

This makes it difficult for anyone to track the original source of the coins, as your actual transaction is mixed with many other transactions. 

For any third party, it will look like you sent some coins to a mixer and your intended person received some coins from different wallets.

What’s The Need For Crypto Mixers?

Wondering why should you use a crypto or Bitcoin mixer? Consider the following reasons:

  • Crypto mixers provide you with privacy if you don't want anyone to trace your transactions
  • Mixing crypto ensures your assets aren’t revealed to others.
  • Cryptocurrency mixers may provide you safety from security breaches that could result in stolen funds

Centralized Mixers vs Decentralized Mixers 

The main difference between centralized mixers and decentralized mixers lies in who controls the mixing process and where the mixing takes place.

centralized mixers are operated by a single entity or organisation, which controls the mixing process and servers. 

When you send the cryptocurrency to the mixer's centralized wallet, it mixes the funds with other users' funds and sends back the mixed cryptocurrency to the user-specified addresses. The entire process is centralized and controlled by the mixer platform.

On the other hand, decentralized mixers operate in a peer-to-peer (P2P) network. Users' cryptocurrency is mixed and transferred directly between themselves, without the involvement of a central authority or any intermediary. 

Decentralized mixers rely on complex algorithms and cryptographic protocols to ensure the anonymity and security of the mixing process.

While centralized mixers are easier to use and have more features, they come with the risk of data leaks. On the other hand, decentralized mixers are more private, but can be slower and harder to use.

Pros And Cons Of Using A Crypto Or Bitcoin Mixer 

If you're planning to use a Bitcoin mixer or any other cryptocurrency mixer, here are some pros and cons to consider.

How To Choose The Right Crypto Mixer?

Choosing the right crypto mixer is important to ensure that your cryptocurrency transactions remain anonymous and secure. Here are some of the key factors to consider when choosing a cryptocurrency or Bitcoin mixer:

  • Reputation: Check a mixer’s reputation and track record of providing reliable and trustworthy service. Look for crypto mixers that have been in operation for a while and have a large user base.
  • User reviews: Go through user reviews and feedback to see what others are saying about the mixer. 
  • Speed of transaction processing: Consider the speed at which the mixer processes transactions. Some mixers may take longer to process transactions, which can be a problem. 
  • Cost: The cost of using a mixer can vary widely. Some mixers charge a fixed fee per transaction, while others charge a percentage of the total amount being mixed. Compare the costs of different platforms to find the best crypto mixer for you.
  • User-friendliness: A complex or confusing mixer can be frustrating and may lead to mistakes or errors. Choose a mixer that is easy to use and has a user-friendly interface. 

In addition to these factors, it's also important to consider whether the mixer is centralized or decentralized, and what security measures it has in place to protect your information and funds. 

Some mixers may also have specific features or services that cater to particular user needs, such as support for specific cryptocurrencies or the ability to set custom mixing times.

Read Also: What is Impermanent loss in Cryptocurrency

Top Cryptocurrency Mixers For Bitcoin Mixing In 2023

Now that you know about crypto mixing and how it can help you send your funds anonymously, let’s explore the top Bitcoin mixers in the crypto industry in 2023.

JoinMarket

This Bitcoin mixer creates a special kind of BTC transaction – called CoinJoin transaction – to provide privacy and anonymity. It makes use of smart contracts to implement the CoinJoin mixing at any time. 

Your private keys are never broadcasted outside the network, keeping your data safe. It also uses “free-market forces” to minimise your fees. 

While JoinMarket can be an excellent choice for you, using it needs some level of technical expertise as the user interface may seem complex.

Anonymix

Anynonymix is one of the best Bitcoin mixers currently in the market. It provides features such as “Quick Mix”, certificate of origin, and auto-deletion of logs within one week of mix to ensure fast and secure Bitcoin mixing.

You can deposit bitcoins from multiple wallets into the mixing pool, and send your mixed funds to up to five receiving wallets. It is one of the fastest mixers that accepts transactions with one single confirmation.

Unijoin.io

Unijoin.io is a trustworthy Bitcoin mixer to maintain your anonymity during the transaction. It also uses Coinjoin Bitcoin mixing to separate your identity and wallet address. 

Every Unijoin user receives a unique UniCode to ensure the coins sent by you during BTX mixing are never sent back to your same address in any future mixes. Apart from Bitcoin, it also allows you to mix Ethereum, Litecoin, and Tether.

Wasabi Wallet

One of the most popular crypto mixers in the market, Wasabi is an open-source, non-custodial Bitcoin wallet.

The platform uses multiple features including CoinJoins, and client-side block filtering to establish anonymity and security. It also lets you control the private keys of your wallets. It has a special anonymous credential scheme called WabiSabi for efficient CoinJoined transactions.

Users can execute mixes without large amounts of bitcoins in their wallets and pay minimal fees for them. 

Wrapping Up

Crypto mixing is a great way to own or send cryptocurrency without compromising your anonymity. However, you must keep the above-discussed points in mind before you choose a platform for Bitcoin mixing or any other coin mixing.

FAQs

What is a crypto mixer?

Crypto mixers are online services that enable users to anonymize their cryptocurrency transactions by pooling their funds with the funds of other users to obscure the owner's identity. 

1. What are the different cryptocurrency mixer services?

There are mainly two types of cryptocurrency mixing services: centralized and decentralized. While the former is operated by a central authority, the latter works on a peer-to-peer network to execute mixes.

2. Are crypto mixers forbidden?

While Bitcoin and crypto mixers aren't forbidden or illegal by law, they are sometimes linked to money laundering cases. This has led to the shutdown of various crypto-mixing platforms by the government.

3. Are crypto mixers traceable?

Crypto mixers increase the anonymity of your Bitcoin or other crypto transactions by mixing your funds with other users’ funds to break the link between your identity and wallet address.

4. How long does the Bitcoin mixing process take?

The mixing time for your bitcoins varies from platform to platform and depends on the features they use for mixing your coins.

5. What is the minimum BTC amount I can mix?

0.001 BTC is the minimum amount needed for mixing. Anything below this amount is viewed as a donation and is not sent back to the client. There is no maximum amount for mixing.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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NFT Tax Loss Harvesting: Save Thousands In Taxes Using NFTs

NFT Tax Loss Harvesting can reduce your crypto taxes but comes with several challenges. Learn how to claim your capital losses in the right way to save taxes.

While the declining hype around NFT trading has been a concern for investors, it may act as a silver lining for tax saving. 

Losses incurred by you can be claimed to offset your capital gains and reduce your overall tax bill. And this can be done through NFT tax loss harvesting. In this article, we discuss everything you need to know about harvesting your NFT losses and how you can leverage it to reduce your tax burden.

What Is NFT Tax Loss Harvesting?

NFT tax loss harvesting is the practice of selling a non-fungible token (NFT) at a loss to offset crypto taxes on other capital gains. The idea is to sell the NFT at a lower price than what was paid for it, and then use the loss to offset capital gains from the sale of other assets. 

This strategy helps to reduce your overall tax burden and potentially increase your after-tax return on investment. To know in-depth about tax loss harvesting for all your crypto assets, you can refer to our crypto tax loss harvesting guide. 

You can claim your capital losses to offset up to $3,000 of income for the given tax year. Any additional losses can be taken forward into future years to offset gains.

Step-By-Step Guide For NFT Tax Loss Harvesting 

To give you a better picture of how to use your NFTs for tax loss harvesting, we have broken down the entire process into three steps:

  • Determining which NFTs can be sold for tax loss harvesting purposes
  • How to realize losses by disposing of your NFTs
  • How you shouldn’t dispose of your NFTs to realize losses

Let’s look at each of the steps in detail.

How To Determine Which NFTs Can Be Used To Realize Losses?

Tax loss harvesting requires you to identify NFTs that can be disposed of to realize losses. To do this, you first need to look into the fair market value of your NFTs at the time of selling. 

However, this process can become challenging as every NFT is unique with variable market values. Automated software like Kryptos can simplify this by helping you identify tax loss harvesting opportunities for your assets.

Once you find their fair market value, you can then subtract it from the cost basis of your NFT to determine whether or not they can be sold to realize losses. 

How To Dispose Of Your NFTs To Realize Losses?

Once you have decided which NFTs can be used to offset your capital gains, it is time to dispose of them to realize losses. While there are many methods to do so, the best way to tax loss harvest your NFTs is to sell them to someone else at a loss. 

But because the NFT market is hype-driven, it often becomes difficult to sell your NFTs if the craze is gone. In this case, there may not be any purchaser to actually buy your NFTs and you will not be able to realize a loss. 

Another way to dispose of your NFT for tax deductions is to donate them. These transactions are exempted from taxes for both the donor and the receiver if you fulfill these three criteria:

  • You have held the NFT for more than a year
  • You are donating it directly to the concerned organization
  • The receiver falls under the tax-exemption category by IRS

It is important to note that the disposal of NFTs must be a ‘arm's length transaction’ to reap tax benefits. This means that both parties concerned with the transaction of the NFT asset should be independent of each other, acting solely in their self-interest, and shouldn’t be influenced by the other.

When Should You Not Tax Loss Harvest Your NFTs?

While we discussed the right way to dispose of your NFTs, here are three scenarios where you shouldn’t use your NFTs for tax deductions.

1- Selling NFT To Your Friend For Tax Loss Harvesting

As discussed earlier, you must sell your NFTs in arm's length transactions to gain tax benefits. If you sell an NFT to your family or friends, it may become hard to prove that the two parties are acting independently, especially if you use the realized loss to offset capital gains. Hence, we recommend avoiding this method of tax loss harvesting your NFT.

2- Selling NFT To Yourself For Tax Benefits

In this case, you do not fulfill the arm’s length transaction requirement of two independent parties involved in the NFT disposal and it will not be considered for tax benefits. 

3- Burning NFT For Realizing Losses

Burning your NFT simply means you are sending it to a dead wallet address that no one can access. While the NFT still remains in the blockchain, it is removed from circulation. The IRS does not have any clear guidelines for this type of transaction and tax loss harvesting through this method must be avoided as of now.

Harvest NFT Losses With Kryptos

NFT tax loss harvesting is a great way to offset your capital gains and improve after-tax return. However, unlike other assets, NFT transaction guidelines can be complex. While harvesting your losses manually can be considered, it may lead to missed tax-saving opportunities and higher tax bills.

Kryptos helps you calculate your realized and unrealized losses and gains so that you can maximize your tax savings. To do this, all you need is to auto-sync your transactions and let the platform do the rest for you. Sign up today to try Kryptos for free.

FAQS

1. Can I burn an NFT to realize a loss?

The IRS does not have any clear guidelines for this type of transaction at present and so this method must be avoided if you want to realize a loss by disposing of your NFT.

2. Can I sell an NFT to myself to realize a loss?

You must sell your NFTs in arm's length transactions to gain tax benefits. Selling NFT to yourself doesn’t fulfill the requirement of two independent parties involved in the NFT disposal and it will not be considered for tax benefits. 

3.Can I sell an NFT to my friend to realize a loss?

If you sell an NFT to your friends or family, it may become hard to prove that the two parties are acting independently, especially if you want to realize a loss. So, we suggest you do not use this method.

4. Can I claim my worthless NFT as a casualty or theft loss?

No, you cannot claim your worthless NFTs as a casualty or theft loss as the ‘Tax Cuts and Jobs Act of 2017’ has removed both of these types of cases from tax exemption.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Crypto Gaming: Understanding the Risks, Opportunities, And Taxes

Explore the world of crypto gaming as we discuss its risks, opportunities, and tax implications. Learn how to report your cryptocurrency games taxes that comply with IRS.

Crypto gaming can be a fun and exciting way to earn cryptocurrency, but unfortunately many users are still unclear about its tax implications and risks involved.  

To get the most out of your crypto gaming experience, it’s essential to understand the opportunities, risks and tax liabilities that come with crypto games. In this guide, we have put forward all the details about this new, exciting world and shared how it is taxed. 

What Is Crypto Gaming?

Crypto Games, also popularly known as P2E games, allow players to earn crypto (e.g. tokens or NFTs) while playing. You can use these cryptocurrencies to purchase in-game items or even trade them on crypto exchanges. 

Unlike traditional online games, crypto games use blockchain technology to provide the payers with an immersive experience and the opportunity to earn crypto rewards. 

Opportunity Of Cryptocurrency Games

Crypto gaming offers exciting opportunities for gamers and investors alike. Let’s look at some of them.

  1. Earn Cryptocurrency: Crypto gaming provides a unique opportunity to earn cryptocurrency while enjoying your favourite games. You can use these cryptos to purchase in-game assets or may even trade them for other crypto assets.
  2. Investment Potential: Cryptocurrencies are a new and rapidly growing asset class that could provide significant returns on wise investment. Many crypto games also offer in-game NFTs that could increase in value over time.
  3. New Gaming Experiences: Crypto games use multiple technologies such as AR/VR and blockchain to offer a more immersive experience with a focus on peer-to-peer gaming.

How Are Crypto Games Taxed?

As per IRS, any crypto that you earn through gaming is subject to income tax and must be reported on your tax return.

The IRS treats cryptocurrency as property, which means that any gains or losses from selling, trading, or using these earned cryptocurrencies are subject to capital gains tax. The difference between its fair market value at the time of acquisition and the selling price is your capital gain or capital loss, and is considered taxable.

For more details, check out the USA cryptocurrency tax guide.

Taxable Events On Crypto Gaming Rewards

To better understand how cryptocurrency rewards from gaming are taxed, it's important to be aware of the different taxable events that could occur. 

Here are some crypto gaming taxable events:

Income Tax

The IRS considers cryptocurrency earned through gaming as income which may be subject to income tax. This is based on the fair market value of the crypto at the time you receive it. 

Capital Gains Tax

If you purchase or earn crypto in-game and then sell it for a profit, you may be subject to capital gains tax. 

To calculate your taxable income, you have to first determine whether you have realized a capital gain or a capital loss. Consider how the crypto price has changed since the time you received it.

If the selling price is more, you have incurred a capital gain and if it’s less, you realize a capital loss. This is considered taxable and needs to be reported in your tax file.

In-game NFT Tax

Non-fungible tokens (NFTs) are unique digital assets that can be purchased or earned in crypto games. If you purchase an NFT using cryptocurrency, IRS considers it as trading which is subject to capital gains tax.

If you sell your in-game NFT for any other crypto, you are subject to capital gains taxes. You may incur a capital gain or capital loss depending on how the NFT’s price has changed from the time you received it. 

For more details, refer to our NFT tax guide.

It's essential to keep accurate records of all NFT transactions to avoid any potential tax issues. This may get complex as you have to track your NFT’s fair market value at different points in time and also consider multiple fees. Use a crypto tax software like Kryptos to automatically track all your NFT transactions and calculate taxes without any potential errors. 

Risks Associated With Crypto Gaming

As with all crypto assets, cryptocurrency games come with their own share of risks including:

  • Volatile cryptocurrency prices which mean that your earnings from crypto games could fluctuate significantly.
  • If you're not careful with your cryptocurrency holdings, you could lose them forever.
  • Technical issues, such as bugs or security vulnerabilities can impact the value of in-game assets and cause players to lose money.

The Tax Problem Of Cryptocurrency Games

The regulatory landscape for cryptocurrency is constantly evolving with no clear tax guidelines at the moment. Any new regulations can have a significant impact on the crypto gaming industry. 

There are many grey areas around how these games are taxed. For instance, receiving airdrops or earning crypto for service is considered an income by the IRS. However, the IRS also states that earning certain crypto assets in-game may not be considered taxable if it doesn’t leave the game. 

Some games may not provide transaction records to their players. This complicates tax calculations as users need to track all assets' fair market values during different transactions.

Report Your Cryptocurrency Games Tax With Kryptos

It’s a good idea to track and plan your taxes before the deadlines. This helps you realize your tax liability in advance and ensures you don’t overpay them. 

Kryptos lets you automatically track all your crypto transactions, including the ones in the cryptocurrency games. It manages all the fair market values of your assets to effectively calculate your taxes and figure out potential tax savings.

You can also generate IRS-defined tax reports to ensure you comply with all tax regulations. To get started with your free tax report, sign up now.

FAQs

1. How are crypto games taxed?

Any cryptocurrency earned through gaming is considered taxable income and must be reported on your tax return. Cryptocurrency is treated as property, which means that any gains or losses from selling, trading, or using cryptocurrencies are subject to capital gains tax.

2. How crypto Taxes will be deducted?

Crypto taxes are typically deducted from your cryptocurrency earnings or gains. You will need to report your cryptocurrency earnings on your tax return, and the tax owed will be calculated based on your tax bracket and the length of time you held the cryptocurrency.

3. How does crypto gaming work?

Crypto gaming uses blockchain technology to provide a unique play-to-earn gaming experience. Players can earn crypto tokens and NFTs by playing these online games. These cryptocurrencies can then be used to buy in-game items or sold for other crypto assets on exchanges.

4. Do you pay taxes on crypto gaming?

Yes, any cryptocurrency earned through gaming is considered taxable income and must be reported on your tax return.

5. How much tax do I pay on crypto gaming?

The amount of tax you pay on crypto gaming will depend on your tax bracket and the length of time you held the cryptocurrency.

6. How do I avoid the crypto gaming tax?

There are no legal ways to avoid paying crypto gaming taxes. Keep accurate records of all cryptocurrency transactions and consult a tax professional to maximize your tax savings. 

7. What will happen if I don’t pay crypto gaming tax?

Failure to pay crypto gaming taxes could result in penalties and legal problems. It's important to file your taxes accurately and on time to avoid any potential issues.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Taxation of Cryptocurrencies in Sweden

Wondering how cryptocurrency taxes work in Sweden? Cryptocurrencies are considered assets and are subject to capital gains tax.

How are Cryptocurrencies Taxed in Sweden?

The Supreme Administrative Court, like the Tax Court, considers that bitcoin cannot be equated with a co-ownership or foreign currency. The sale of bitcoin must therefore be taxed in accordance with the provisions on other assets in Chapter 52. Income Tax Act, IL. Bitcoin can not be a so-called personal asset, which means that the overhead amount must be calculated according to the so-called the average method and that 70 percent of a loss may be deducted.

When Should I Declare My Cryptocurrency in Sweden?

  • sold cryptocurrency
  • exchange a cryptocurrency for one or more other types of cryptocurrency
  • exchange a cryptocurrency for a FIAT currency, eg USD, Kronor
  • paid with cryptocurrency when buying a product (for example a pair of shoes) or a service (for example a taxi ride)
  • lent out cryptocurrency
  • use cryptocurrency as a gaming bet
You report this on Enclosure K4 under section D, which you submit together with your income tax return.
How you are taxed
If you have, for example, bought and sold cryptocurrency, you calculate your profit or loss as follows:  

What you have paid (sales price)
- what you bought for (overhead amount)
= your profit or loss.

You who have made a profit are taxed for the whole profit. You pay 30 percent in tax on your profits. If you have made a loss, it is deductible to 70 percent.

Cost Amount For Crypto Tax in Sweden

Your overhead amount is normally the amount for which you purchased your cryptocurrency. But depending on how you obtained your cryptocurrency, the overhead amount is calculated in different ways.

You need to be able to prove the overhead amount with, for example, receipts or original account statements from exchange companies. If there have been wallet addresses, the transactions in the blockchain must be consistent with the reporting of purchases, mining and sales of the bitcoin.

If you have acquired or received cryptocurrency on several different occasions, you must calculate an average overhead amount. The standard method, which uses 20 percent of the sales price as an overhead amount, may not be used when reporting cryptocurrency.


Example - buying and selling cryptocurrency

In 2017, Anela bought bitcoin on two occasions. On October 12, she bought 0.5 bitcoin for SEK 20,000 and on November 12, she bought another 0.2 bitcoin for SEK 10,000. On October 16, 2020, she sold 0.4 bitcoin for SEK 40,000. Anela shall report the sale in  K4 under section D.

She makes an average calculation on the help form SKV2198.

Bildsom visar hur hjälpblanketten SKV2198 ser ut
Anela can either report her sales in the e-service Income Statement 1 or on paper form K4 under section D.

Report on form K4 section D

Under Number / Amount in foreign currency, Anela fills in 0.4. As a designation, she indicates Bitcoin. She also fills in the sales price (SEK 40,000), overhead amounts (SEK 17,143) and profit (SEK 22,857). At the bottom of the form, she sums up the total amounts.
bild som visar hur blankett K4 ser ut
Accounting in the e-service Income tax return 1

In the e-service Income Declaration 1, Anela looks up K4 - Other securities, other assets (capital investments, eg commodities, cryptocurrencies), etc.

Anela indicates Bitcoin as a designation. She also fills in the sales price (SEK 40,000) and overhead amounts (SEK 17,143). The e-service then calculates her profit automatically.

There is no possibility to fill in decimals in the e-service. Anela therefore rounds to the nearest integer and puts 0 in the box for Number. Anela then writes under Other information that she sold 0.4 pieces of bitcoin.
Bild som visar hur e-tjänsten ser ut

Examples - purchase, sale, purchase of goods

Eva does not conduct any business and as a private individual has carried out a number of different purchases and sales of bitcoin as follows:

Eva buys 10 bitcoin for SEK 10,000 and then buys another 10 bitcoin for SEK 50,000. In total, she has bought 20 bitcoins for SEK 60,000 and each bitcoin thus has an average overhead amount of SEK 3,000 (SEK 60,000 ÷ 20).

Eva sells 15 bitcoin for SEK 60,000 and the overhead amount is SEK 45,000 (15 x SEK 3,000). The profit will thus be SEK 15,000 (60,000 - 45,000). The remaining overhead amount for 5 bitcoin is SEK 15,000.

Eva buys another 5 bitcoin for SEK 25,000. The total overhead amount is now SEK 40,000 for 10 bitcoin, which entails a new average overhead amount of SEK 4,000 for each bitcoin.

Eva buys goods on the internet for SEK 2,000 and pays with 0.345 bitcoin. Eva thus sells (sells) 0.345 bitcoin for SEK 2,000. The expense amount is SEK 1,380 (0.345 x SEK 4,000) and the capital gain is thus SEK 620 (2,000 - 1,380).

Eva sells 5 bitcoin for SEK 15,000. The average overhead amount is still SEK 4,000 per bitcoin. This leads to a capital loss of SEK 5,000 (15,000 - 20,000).

Eva reports a total capital gain on Enclosure  K4, section D of SEK 15,620 (SEK 15,000 + SEK 620) and a capital loss of SEK 5,000. The capital gain is taken up to 100 percent and the capital loss is deductible to 70 percent. There is no set-off on Enclosure  K4, section D. The Swedish Tax Agency automatically reduces the capital loss to SEK 3,500 (5,000 x 70 percent) before it is deducted from the capital gain when calculating the surplus capital.

Example - switching between different cryptocurrencies

Samira does not conduct any business and as an individual has invested in bitcoin. She has since exchanged her bitcoin for litecoin. Switching from one cryptocurrency to another means that she must make a capital gain calculation. Samira has previously bought 10 bitcoin for SEK 100,000 and she exchanges these for litecoin. Her overhead amount for the bitcoin she exchanged for will thus be SEK 100,000. The sale price will be the value in Swedish kronor of the litecoin that Samira received at the time of the exchange. Samira must report this in the income category capital in Enclosure  K4, section D.

Example - buying and selling bitcoin (simplified accounting)

Eddie does not run a business and has traded with bitcoin as a private person.

Eddie has bought 2 bitcoin for SEK 128,000. His average overhead amount for each bitcoin will be SEK 64,000 (SEK 128,000 ÷ 2). Eddie will then sell 0.01 bitcoin in 2020 on two hundred different occasions. His overhead amount for each sale will be SEK 640 (SEK 64,000 x 0.01). Some of the sales have led to profits and some to losses.

Eddie does not have to report each sale separately. He sums up his total sales price and his total overhead amount for the profit transactions he has made. He then fills in the sales price and the overhead amount in Enclosure K4 under section D. The difference is reported as a profit. He also fills in the total number of bitcoin he sold with a profit rounded to the nearest whole number. He then sums up his total sales price and his total overhead amount for the loss transactions he has made. He then fills in the sales price and the overhead amount in Enclosure K4 under section D. The difference is reported as a loss. He also fills in the total number of bitcoin he sold with a loss rounded to the nearest whole number.

The profit is taken up to 100 percent and the loss is deductible to 70 percent. There is no set-off on Enclosure K4, section D. The Swedish Tax Agency automatically reduces the loss to 70 percent.
Bild på e-tjänsten.

Taxable Events For Cryptocurrency in Sweden

Here we have summarized various taxable events for which you are liable to pay tax. We at Kryptos are not responsible for the Tax Agency rules regarding the taxable events not matching our information. This is not tax advice, we therefore ask you to contact the Skatteverket for more information with questions or concerns.

Sale of Cryptocurrency in Sweden

Selling cryptocurrency in Sweden is a taxable event and must be declared as a capital gain.

Trade Crypto for Crypto

To trade crypto for crypto or crypto for stack coins (TUSD → BTC eller  BTC → TUSD) is a taxable event and is taxed as a capital gain.

If you have invested in bitcoin then switch your bitcoin to ethereum. Switching from one cryptocurrency to another requires you to make a capital gains calculation. Samira has previously bought 10 bitcoin for SEK 100,000 and she exchanges these for ethereum. Her overhead amount for the bitcoin she exchanged for will thus be SEK 100,000. The sale price will be the value in Swedish kronor of the ethereum that Samira received at the time of the exchange.

Initial Coin Offering (ICO)

ICOs are taxed as sales. In case of successful sale, the overhead amount is the market value of the cryptocurrency that you used to participate.

Purchase of Goods and Services with Cryptocurrency in Sweden

Purchases of goods and services are taxed as sales and must be declared as capital gains.

Margin Trading

The realized gain or loss is taxed as a capital gain when the position is closed.

If you realized a profit, the cost base profit is applied after you have paid the capital gains tax. In the event of a loss, it works in the same way as if you sold your crypto for SEK 0, the loss is equal to your crypto's average cost base.

Buy Crypto

Buying crypto is not taxed, however, it is important to keep track of the price of the cryptocurrency at the time of your purchase in order to later be able to calculate the correct overhead amount when selling.

Transfer Crypto Between Your Wallets

Transfers between different wallets do not need to be taxed. For your own sake, it is good to book your transactions. This will make it easier for you to calculate the overhead amount.

Lost or Stolen Cryptocurrency in Sweden

Lost, hacked or stolen crypto is not taxed. If you have made a profit on your crypto, the profit is taxed regardless. You can therefore not compensate for lost or stolen crypto against your winnings. You remove the relevant cost base from your calculations.

Give / Receive Crypto as a Gift

Giving away or receiving a crypto as a gift is not taxed. This also applies to donations, however, it must be taxed on sales.

Income From Other Activities (eg. Freelance)

Income from other activities such as work or a service must be declared as income tax. The cost basis for the crypto you received is the same value that you stated as income.

Rewards, Airdrops & Forks

Airdrops and Hardforks are counted as gifts and are not taxed. Only on sale should this be taxed and the cost amount should then be zero.

Mining Cryptocurrency in Sweden

If you as an individual have income from mining bitcoin and other cryptocurrencies, you must pay tax on the income. They are normally taxed as income from employment (hobby) but can exceptionally be taxed as income from business activities.

Lending of Crypto

Lending of cryptocurrency in Sweden is taxed as a sale and must be declared as a capital gain.

Interest

The interest is classified as income and must therefore be taxed as earnings. It is a bit unclear how it should be declared, in a conversation with the tax authorities we came to the conclusion that income from interest can be declared in the K4 form section D (see picture) and not in section 7.2 Interest income, dividends, profit from Enclosure K4 section C ( listed bonds, currency, etc.).

Loans against fiat

Borrowing FIAT currency, eg USD, Kronor, Euro in exchange for crypto is taxed as a sale and must be declared as a capital gain.

Closed loan

Closing your loan or taking back your crypto does not count as a taxable event and does not need to be declared.

Staking & Staking Rewards

Staking of a cryptocurrency is taxed as a sale and must be declared as a capital gain.

Staking rewards

Staking rewards are classified as an income and should therefore be taxed as a gain, just like the interest rate on a loaned crypto.

Closed staking

Ending your staking or taking back your crypto does not count as a taxable event and does not need to be declared.

Non-Fungible Token (NFT)

Purchase NFTs

Buying NFTs is not taxed, however, it is important to keep track of the price of the NFT at the time of your purchase in order to later be able to calculate the correct overhead amount when selling.

Purchase of NFTs for crypto

To purchase an NFT with crypto (ETH → NFT) is taxed as a sale and must be declared as a capital gain.

Sale of NFTs

The sale of an NFT is a taxable event and must be declared as a capital gain.

Sale of NFT for crypto

The sale of NFTs for crypto is a taxable event and must be declared as a capital gain.

Sale of NFT for another NFT

A sale of NFT for another NFT is a taxable event and must be declared as a capital gain. It is important to keep track of the price of the NFT at the time of your purchase in order to later be able to calculate the correct overhead amount when selling.

Cryptocurrency in Business

If you have received cryptocurrency as payment in your business, the subsequent change in value should normally be taxed as income from capital. However, this does not apply in businesses where the cryptocurrency is an inventory asset, for example if you run an external exchange business. In such cases, you must report the income as income from business activities.

Example - business

Olof sells goods in his web shop on the internet. He charges in bitcoin. Olof books each sale separately in Swedish kronor based on the value on the day he is paid in bitcoin. Since bitcoin does not constitute stocks in this type of business, Olof is considered to make his own withdrawal of bitcoin the moment he receives them.

In January, he booked sales income and VAT with a total of SEK 34,500 and during this period he received a total of 0.4 bitcoin, which he then takes out and then sells for SEK 36,000. This must be reported in the income category capital in Enclosure  K4, section D. The sales price is SEK 36,000 and is reduced by the overhead amount that corresponds to the reported amount in the business, including VAT, ie SEK 34,500. The capital gain will be SEK 1,500.

Disclaimer

We at kryptos.io strive for the information to be correct in all respects. However, we can not guarantee this, and therefore can not take any responsibility for any losses caused by incorrect information on this web service. However, we are grateful for all remarks about inaccuracies. If you have found something that seems wrong, feel free to send us a message at contact@kryptos.io.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Cryptocurrency Trading and Taxes in Canada: What You Need to Know

Canadians are subject to either business income or capital gains taxes on cryptocurrency trading. Learn how crypto is viewed by CRA and the tax implications.

If you're feeling confused about the cryptoverse and wondering how to handle taxes on your digital assets in Canada, you're not alone! Complex tax obligations and legal compliances cause thousands of crypto enthusiasts to face the same dilemma.

To help you out, we have curated a detailed guide for cryptocurrency trading and what it means for taxes in Canada. We also discuss strategies to help you minimise your cryptocurrency taxes.

Why It’s Important To Understand Cryptocurrency Taxes in Canada

The Canada Revenue Agency (CRA) considers cryptocurrency as a commodity for tax purposes. This means your crypto asset is subject to either income tax or capital gains tax depending on how it is used. 

It’s not possible to avoid these taxes and failing to comply with the rules could result in penalties or legal consequences. However, if you are not aware of the latest regulations in the tax space, you may miss out on taxable transactions or overpay your taxes.

How Is Cryptocurrency Taxed In Canada?

Cryptocurrency in Canada is considered a commodity which is subject to taxes. You may have to pay crypto taxes if you dispose of your crypto in the following ways:

  • Exchange your cryptocurrency for fiat currency
  • Trade your crypto token for another crypto
  • Purchase any products or services with cryptocurrency
  • Gift your crypto 

The profits you gain from cryptocurrency can be classified as:

  • Business income which is 100% taxable
  • Capital gain which is 50% taxable

Taxation Rules for Cryptocurrency Traders In Canada

You do not have to pay taxes for buying or holding cryptocurrency in Canada. You are subject to capital gains or business income taxes on selling your crypto, mining crypto, or other crypto-related activities.

Whether or not the CRA will treat you as a business is decided on a case-by-case basis. For business income, you will have to pay taxes on 100% of your profits. Whereas, if you qualify as an individual investor, you will pay taxes on only 50% of your profits.

As per CRA, these signs can make you seen as a business:

  • Investing for commercial reasons and in a commercially viable way
  • Undertaking investment activities in a businesslike manner (e.g. preparing a business plan or acquiring capital assets)
  • Promoting a product or service
  • Intending to make a profit

When Do You Have To Pay Capital Gains Tax In Canada?

Any profits you make from disposing of your crypto are considered capital gains for individuals. You may be subject to capital gains taxes in the following disposal cases:

  • Selling your crypto for fiat
  • Trading your crypto for another crypto
  • Spending your crypto for purchasing goods or services
  • Gifting your crypto

The CRA explains that you do not have to pay taxes on 100% of your profits if you are an individual – you only pay tax on half of your net capital gains for a given tax year.

The capital gains tax rate is the same as the federal tax rate and provincial and territorial tax rates

Here’s the federal tax rate in Canada for the tax year 2022 and 2023:

For more details on provincial tax rates, refer to our blog here.

When Do You Have To Pay Business Income Tax In Canada?

If disposing of cryptocurrency is seen as part of a business by the CRA, the profits you make on the disposition or sale are considered business income and not capital gain.  

In this case, you have to pay taxes on 100% of your profits. The business income tax rate remains the same as the federal tax rate and provincial tax rate.

Some common business income examples include:

  • Mining crypto
  • Staking crypto for rewards
  • Trading your crypto

Taxation of Crypto Mining And Staking In Canada

The income tax treatment for cryptocurrency mining varies depending on whether the mining activities are a personal activity of the miner (e.g. a hobby) or a business activity. This is decided on a case-by-case basis by the CRA. 

  • You do not pay taxes when you receive crypto by mining
  • You are subject to capital gains tax or business income when you make any profit by disposing of your mined crypto

The taxation rules for mining, staking, and lending your crypto and tax rates remains constant as discussed above. You can use crypto tax software like Kryptos to automatically track all your transactions and calculate the applicable taxes as defined by CRA.

Taxation Of Crypto Derivatives, Margin Trading, and Other CFDs

How you will be taxed by the CRA depends on whether you are trading as an individual investor or a business. In both cases, you are not subject to taxes when you open a position. However, when you close your position, you are subject to tax as:

  • 50% of the profits for a personal investor
  • 100% of the profits for a professional day trader

If you incur any capital losses in the trade, you can claim them to offset your capital gains. Any loss in the business income can be used to offset income from other sources.

Reporting Cryptocurrency Trading Income and Losses

If you are a cryptocurrency trader in Canada, you must report your trading activities to the CRA. This includes reporting your cryptocurrency trading gains and losses on your tax return. 

You can file your crypto tax using:

  • Schedule 3 Form to report your capital gains and losses
  • Form T2125 to report your crypto business income 
  • Form T1135 if you are a Canadian resident holding crypto outside the country (if the total cost of your foreign property exceeds $100,000)

You can offset any realised capital gains using the capital losses you have incurred for a given financial year. It cannot be used to offset income from other sources, such as employment income. You can carry forward any excess capital losses for up to three years.

Strategies to Minimise Cryptocurrency Taxes

There are several strategies that cryptocurrency traders can use to minimise their taxes including:

Hold Your Crypto

The longer you hold a cryptocurrency, the more likely it is to be subject to capital gains tax rather than income tax. Instead of paying taxes on your entire profits, you will have to pay taxes on only 50% of your capital gains.

Tax Loss Harvesting

You can use tax loss harvesting by selling your losing investments to realise a capital loss and use it to offset your gains. This strategy can help to lower your tax bill.

Take Profits In A Low-Income Year

This reduces your overall taxable income and in turn, your tax liability. For instance, if you cash out your crypto profits during a year when your total income is less than $15000 (from 2023 onwards), you do not have to pay any taxes.

Deductible Expenses for Cryptocurrency Trading

You may be able to deduct expenses related to your cryptocurrency trading, such as transaction fees and software costs. You can also use any realised losses in your business income and claim them as expenses.

Wrapping Up

Understanding cryptocurrency taxation rules in Canada is crucial for cryptocurrency traders to avoid legal issues and minimise tax burdens.

If you are a cryptocurrency trader in Canada and are unsure about your tax obligations, it is recommended to seek the advice of a tax professional. Alternatively, you can use Kryptos to automatically calculate your crypto taxes and ensure they comply with the latest laws defined by CRA. 

Once you add your wallet to the platform, it auto-syncs all your transactions, detecting every taxable event from your history including DeFi and NFTs, and utilizing in-built mechanisms to reduce your tax bill. You can also generate different tax reports that are required to file your taxes in Canada.

To learn more about the platform or calculate your crypto taxes, Sign Up for free now. 

FAQs

1. Is cryptocurrency trading taxable in Canada?

Canadians are not liable to pay taxes if they purchase or hold cryptocurrency but may be subject to capital gains or business income taxes if they sell, mine, or receive other crypto-related income.

2. How much taxes do you pay on crypto in Canada?

How much taxes you pay on your crypto assets in Canada depends on whether you are an individual investor or a business, and your income bracket. As per CRA, any business income is 100% taxable, but if you are an individual investor, you are subject to capital gains tax which is only 50% taxable. 

3. How do I avoid crypto tax in Canada?

There’s no legal way to avoid crypto tax in Canada, however, there are several methods to minimise your tax bill including:

  • Tax-loss harvesting
  • Holding your crypto
  • Being seen as an individual investor
  • Taking out profits in a low-income year

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Crypto Tax Guide 2023: Tax Saving Strategies For Crypto Holders

Looking to save on your crypto tax? Here’s your ultimate crypto tax guide for the latest strategies on how to reduce your tax bill for cryptocurrency tax saving.

Wondering how to save tax on your cryptocurrency? Well, there’s both good news and bad news for you.

While you can’t completely avoid paying taxes, the good news is: there are multiple ways to legally minimize crypto taxes and reduce your tax burden. 

In this article, we share all the details about crypto tax that you need to know and seven simple strategies to minimize it.

How Is Cryptocurrency Taxed?

As per IRS, cryptocurrency is considered a property which makes it subject to both income tax and capital gains tax. A tax of up to 37% on crypto income and short-term capital gains and between 0% to 20% tax on long-term capital gains is applicable. The final tax amount depends on various factors including how long you have held the assets, your earnings, and the type of crypto transactions you are making.

Let’s discuss both types of applicable taxes in detail.

  • Income Tax- You need to pay income tax if you earn any income in cryptocurrency. There are various events that can be considered taxable including income through airdrops, DeFi interests, referral bonuses from crypto applications, or even simply getting paid in crypto.
  • Capital Gains Tax- You are subject to capital gains tax if you dispose of your cryptocurrency in either of the three ways: selling crypto for fiat, trading crypto, or using crypto to buy goods and services. Taxes are applicable on the capital gains you made from the disposal of your crypto.

When Is Crypto Tax-Free?

Not all crypto transactions are taxable. Here are five scenarios when you do not need to pay taxes on your crypto:

  • Buying crypto with fiat
  • HOLDing Cryptocurrency
  • Gifting cryptocurrency
  • Donating your crypto
  • Transferring crypto assets between your own wallets

7 Simple Strategies To Minimize Crypto Taxes

Now that you know how crypto is taxed, let’s dive into seven effective ways to help you save tax on cryptocurrency.

  • HOLD Your Crypto For Long Term

The best way to avoid any capital gains taxes is to HOLD your crypto. Even if you plan to dispose of your crypto, it’s important to note that the longer you hold your assets, the less taxes you need to pay. Remember, long-term capital gains where you have held your crypto for more than 12 months are subject to only 0-20% tax as opposed to 37% tax for short-term capital gains.

  • Tax Loss Harvesting

If any of your crypto assets have depreciated in value, you can sell them at a loss to save taxes on your overall bill. This process is also known as tax loss harvesting and is a great way to minimize crypto taxes, especially if your capital gains are high. For instance, you have a total capital gain of 2000$. To reduce your crypto tax bill, you sell a few of your crypto assets at a loss of 2000$ and offset your capital gains while calculating taxes.

  • Take A Loan With Your Crypto

Taking out loans with your stocks as collateral is a great way to cash out your profits without paying taxes. The good news is, the same strategy can be applied to your crypto assets. Since crypto is considered a form of property as per the IRS, you can use them to borrow money without triggering any taxation. Consider the loan interest rate and your personal income to make the best decision. 

  • Gift Your Crypto

You can gift crypto to your family and friends for up to 15000$ to avoid applicable taxes. If the gift value exceeds the mentioned amount, you simply need to submit a gift tax return form, primarily for informational purposes. This way, you not only enjoy your crypto assets tax-free but the recipients also do not have to pay any taxes until they sell it for a profit.

  • Donate Crypto

This is one of the ways to dispose of your crypto without being taxed. This is also a great way to contribute to a positive cause while receiving tax benefits. If you have held your cryptocurrency for more than a year, the fair market value at the time of donation can be deducted from your tax return.

  • Sell At The Time Of Low Income

You are now already aware that long-term capital gains are subject to 0-20% taxes. But did you know the tax rate for crypto sold after a year is 0% for investors who earn less than $41,676 including crypto income? This idea can be used strategically to avoid your capital gains tax completely. Consider cashing out your profits during years when your income bracket is lower than the above-mentioned threshold to save on your tax bill.

  • Leverage A Crypto Tax Software

Calculating taxes on all your crypto transactions manually can be tedious. It’s difficult to keep track of the US dollar exchange rate at every point of the year and figure out how it relates to your transactions. This may lead to calculation errors or make you lose money as you may overlook tax-saving opportunities such as leveraging HIFO accounting, or tax-loss harvesting when applicable. The best way to ensure you calculate your crypto taxes the right way and reduce taxes on cryptocurrency is to use automated crypto tax software like Kryptos. You do not need to spend hours tracking all your transactions – simply auto-sync all your wallets and exchanges to generate free tax reports in seconds. All these reports comply with your local laws and utilize tax-saving strategies to give you the best result, stress-free.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Bitcoin Halving - How it works and Why it is Important

Bitcoin Halving - How it works and Why it is Important

Ever heard of Bitcoin Halving? 

It’s essentially a cycle that governs bitcoin mining and ensures that the bitcoin network keeps running. 13 years ago when the genesis block of the Bitcoin network was mined, the reward was 50 bitcoins. In 2023, It’s down to 6.25 bitcoin after three subsequent bitcoin halving.

Isn’t that fascinating?

We mined 90.47% of the bitcoin supply in a little over a decade and it will take us another century to mine the remaining 9.53% of the supply, all thanks to a process called Bitcoin halving and it’s a fascinating feature of the Bitcoin network.

And by the time you’re done reading this extract, you will know everything there is to know about Bitcoin Halving.

So let’s jump straight into it.

Bitcoin Halving ( Quick Explanation ) :

The Bitcoin network is supported by a blockchain-ledger that records every transaction and facilitates transparency. Now, for the network to be secure and reliable, these transactions must be verified by someone. That’s where miners join the narrative, they validate these transactions by solving complex hashingh algorithms using specialized hardware.

But why do they do it?

Because for every transaction they validate, they receive Bitcoins as a reward. Now the number of bitcoins they receive for validating one block of transactions is decided by the bitcoin mining algorithm, supposedly written by Satoshi Nakamoto(creator of Bitcoin). 

“One of the most important features of Bitcoin is its limited supply and issuance mechanism,” says Bruce Fenton, CEO of fintech company Chainstone Labs. “Bitcoin provides certainty in an uncertain world. The code, not people, decide how it is issued.

The algorithm proposes a halving after every 2,10,000 blocks of transactions have been verified by the miners, which takes roughly 4 years to complete. This process of reducing the mining rewards per block is called Bitcoin Halving or BTC Halving. Initially, the network rewarded 50 bitcoins for every verified block, 13 years, and 3 bitcoin halvings later, we now stand at 6.25 bitcoins per verified block.

How Does Bitcoin Halving Work?

Bitcoin being a Proof-of-work network runs on a decentralized network of validator nodes that facilitate, verify, and register transactions on the Bitcoin blockchain. Now, these validator nodes are responsible for verifying transactions to maintain the integrity of the network, and for every block of transactions that are verified, the miners receive 6.25 bitcoin as a reward.

With access to the current computing resources, it takes us almost 10 minutes to validate a block(and the transactions in it). Now according to the bitcoin mining algorithm, this reward is to be reduced by 50% after every 2,10,000 blocks are verified and added to the blockchain. And surprisingly when you convert minutes into hours, it comes down to 35,000 hours, that’s 1,458 days, and that’s 3 years and 363 days or approximately 4 years.

That’s why the bitcoin halving cycle repeats every 4 years.

The Reason Why Bitcoin Halving Occurs : 

When Satoshi Nakamoto proposed the concept of Bitcoin. He/she assumed the mass adoption of the concept across the globe and that would consequently imply a high valuation for the project and in turn a high token price. So the need for moderation of mining rewards in the future was evident to balance the limited supply. 

Calculating over the entire duration of its existence, the bitcoin network has given away $5 billion per year as mining rewards on average, and with the ludicrous price movements and incessant bull runs driving the price through the roof, it’s only natural for the network to optimize the reward in a manner that conforms with the value proposition of the project. 

Implications of the Bitcoin Halving Event :

The interplay between bitcoin mining and bitcoin halving is a crucial link to understanding the implications of bitcoin halving on the network. Mining does more than add new bitcoin to circulation, it is also the network’s defense mechanism against wrongdoers with malicious intent toward the network. It incentivizes using computing power to support the network, instead of using it for its destruction, say by double spending the same tokes, or by launching a denial-of-service attack on the network. 

In the words of renowned crypto researcher Hasu:

The game theory that secures Bitcoin requires that a) miners have an incentive to mine honest blocks [and] b) miners have a cost ... to attempting dishonesty.”

The rewards linked to supporting the network far outweigh the costs of attempting an attack on the network. However, with critical remarks from global leaders like Donald Trump, Joseph Stiglitz, and Joe Biden, attacks on the network are still a possibility. Therefore, the implications of bitcoin halving can be truly pivotal for the survival of the network in the long run. 

As long as the incentives for supporting the network are above a profitable threshold that supports the costs linked to mining and leaves some money on the table, the network is presumably safe unless the motives are not political. 

However, with mining rewards dwindling with every bitcoin halving and rising energy costs, consequent bitcoin halvings might harm the health of the network. Transaction fees on the network are one alternative to mining rewards. However, bitcoin supporters view it as a store of value like gold, instead of a medium of exchange.

Affect of Halving on Bitcoin’s Price : 

Let's go by the conventional route of supply and demand. Bitcoin halving should theoretically increase bitcoin’s price because after every bitcoin halving the supply goes down by 50% for the next 4 years. Now even if we consider the demand a constant function instead of an increasing one, the price should ride an upswing. 

Even since bitcoin’s genesis block was mined, the network has gone through three bitcoin halvings, and each one of them has reaffirmed this logic. The figure given below depicts bitcoin’s price as a function of time in and around the halving years.

                                                                   Source: Coin Metrics

As evident from the above figure, bitcoin’s price appears to be on an upswing that starts 365 days before the bitcoin halving and ends 365 days after that. And the chart retraces the same pattern before every bitcoin halving. Now, with the next bitcoin halving scheduled for June next year, predictions are positive. However, no one can be certain about the price movements because the economic conditions are not the same as they were before the last halving.

Who decides the Bitcoin Halving Schedule?

All the major decisions for the network are made by the algorithms without any human intervention. The bitcoin mining schedule is deeply ingrained in Bitcoin’s mining algorithm, which was supposedly coded by the anonymous creator(s) of the bitcoin network, famously known as Satoshi Nakamoto. 

The goal of bitcoin was to offer an alternative to fiat currency and that would mean creating a dynamic monetary policy capable of dealing with inflation and deflation. Now at the time, Nakamoto had no possible way to extrapolate the extent of adoption of the bitcoin network, so he/she proposed a constant rate of reduction for mining rewards. 

“Coins have to get initially distributed somehow, and a constant rate seems like the best formula,” 

…wrote Nakamoto in the whitepaper, the constant rate being a reduction of 50% in the mining rewards after every 2,10,000 blocks are mined.

State-issued currencies have a multitude of tools at their disposal to add or remove currency from the markets. However, with a decentralized network like bitcoin, even the tiniest of changes need large-scale cooperation and planning. And this is exactly why the bitcoin network needs a meticulous mining schedule to maintain its efficacy and facilitate an optimal reward ratio for the contributors that offer the operative scaffolding for the network.

What Happens When Block Rewards Dwindle or Vanish Entirely?

Bitcoin mining is a costly affair and unless the network offers an optimal reward for validating the transactions on the network, there’s no incentive to continue mining bitcoin. Let’s say miners have to spend an amount “T”(on energy costs, hardware costs, operational costs) for validating a block of transactions, then the network has to offer a mining reward “R” that’s greater than “T” for sustainable levels of miner activity, or the network collapses. 

With every bitcoin halving, we are moving closer to the threshold value “T” on the bitcoin network and that’s a major concern. Bitcoin supporters propose a dynamic model that incentivizes miners to validate transactions by offering them a percentage of the transaction fees on the network. However, this model only holds when people use bitcoin for transactions, which is not the case in the current markets. Bitcoin is called “digital gold” and is considered a store of value commodity, not a digital currency. Although the last bitcoin will be mined somewhere around the year 2,140, the need for the proliferation of a global payment model that facilitates high volumes of bitcoin transactions is evident.

“In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes. I’m sure that in 20 years, there will either be very large transaction volume or no volume,” writes Nakamoto.

FAQs

1. When was the date for the last Bitcoin Halving?

The last bitcoin halving occurred on May 11, 2020. The block reward was reduced from 12.5 Bitcoins per block to 6.25 Bitcoins per block. This reduction in the block reward has the effect of decreasing the rate at which new bitcoins are introduced into circulation. It is one of the key mechanisms by which the supply of bitcoin is controlled. 

2. Briefly describe the Bitcoin Halving History.

Ever since bitcoin’s genesis block was mined back in 2009, the network has gone through three bitcoin halvings. 

  • The first Bitcoin halving occurred on November 28, 2012, when the block reward was reduced from 50 Bitcoins per block to 25 Bitcoins per block.
  • The second Bitcoin halving occurred on July 9, 2016, when the block reward was reduced from 25 Bitcoins per block to 12.5 Bitcoins per block.
  • The third Bitcoin halving occurred on May 11, 2020, when the block reward was reduced from 12.5 Bitcoins per block to 6.25 Bitcoins per block.

3. When is the next Bitcoin Halving cycle?

The next Bitcoin halving cycle starts June 2024, after the next halving successfully takes place. The mining rewards will be reduced from 6.25 bitcoin per block to 3.125 bitcoin per block. The cycle will run for the next 2,10,000 blocks starting at block 8,40,001 and ending at block 10,50,000. Assuming a linear growth in computing power, the cycle will end around May 2028.

4. Is Bitcoin Halving good or bad?

It is difficult to definitively say whether Bitcoin halving is good or bad, as it depends on the lens you view it with. From a purely economic perspective, halving can be seen as good because it reduces the rate at which new Bitcoins are introduced into circulation, potentially leading to increased scarcity and a higher price. 

However, halving can also be seen as bad for miners, as it reduces the block reward that they receive for their work, which could potentially lead to a decrease in the security of the Bitcoin network if miners decide to leave. Ultimately, the long-term effects of halving the Bitcoin market and network are uncertain and will depend on a variety of factors.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Get Your Taxes Right: The Best Crypto Tax Software in Canada 2023

Discover the best crypto tax software in Canada to help you manage and report your cryptocurrency transactions accurately and effortlessly to the CRA.

The crypto world is full of exciting opportunities, but it also comes with its fair share of complexities, especially when it comes to taxes. 

As a Canadian cryptocurrency trader, you need to ensure your tax returns are accurate and compliant with the Canada Revenue Agency (CRA) guidelines. In this blog post, we'll explore the best crypto tax software in Canada for 2023 that can help you report your crypto taxes with ease.

What is a Crypto Tax Software?

Crypto tax software is a tool that simplifies the process of calculating and reporting your cryptocurrency taxes. 

By importing your transaction data into the software, you can automatically calculate your capital gains and losses and generate the necessary tax reports, ensuring you stay compliant with the CRA laws.

However, not every crypto software is created equal, which is why it’s important to compare all the available options before making the final choice.

What Features to Look For in Crypto Tax Software?

When choosing the best crypto tax software in Canada, consider the following features:

User-Friendly Interface

A simple, intuitive interface makes it easy to input and manage your cryptocurrency transactions. Crypto software like Kryptos allows you to calculate your crypto taxes directly from their mobile app and manage your tax portfolios from a single dashboard.

Compatibility With Canadian Tax Regulations

The best crypto tax software in Canada should be compliant with the current CRA guidelines. In addition, the app must reflect any changes in the tax laws.

Integration With Popular Exchanges And Wallets

Seamless integration with your preferred exchanges and wallets streamlines the import of transaction data. The best crypto tax software in Canada must have maximum integrations to cover different applicable taxes defined by CRA.

Precise Tax Calculations

The best Canadian crypto tax software should accurately calculate capital gains, losses, and other tax-related figures. Dashboards to view all tax calculations and handle errors are helpful.

Accurate Reporting

Your crypto tax software should generate detailed reports that comply with CRA guidelines to facilitate tax filing.

Benefits Of Using Crypto Tax Software

Cryptocurrency taxation can be complex, as it involves tracking and reporting multiple transactions, often across different currencies and exchanges. 

Luckily, you don’t have to do all this manually, thanks to the powerful crypto tax software available in the market. 

Here are 4 ways crypto tax software can simplify your tax calculations.

  • Automating calculations: Calculate capital gains and losses accurately, and handle other tax-related tasks such as tax-loss harvesting.
  • Minimising errors: Reduce the risk of human error and ensure compliance with CRA regulations.
  • Saving time: Reduce hours of gathering transaction data manually to just a few minutes and generate reports almost instantly. 
  • Providing insights: Gain a better understanding of your tax obligations and identify potential tax-saving strategies.

Best Crypto Tax Software in Canada: Kryptos

Kryptos is the best crypto tax software in Canada if you are looking to calculate your crypto taxes in just a few minutes and save maximum taxes.

The platform also has one of the highest integrations available in the market with more than 100+ wallets and exchanges, 50+ blockchains, 2000+ DeFi protocols, and even NFTs. It also offers all necessary tax reports defined by the CRA to cover different taxes including capital gains tax, business income tax, and even taxes on foreign properties.

So whether you are lending or staking your crypto, trading as an individual trader or business, Kryptos supports the necessary integrations and tax forms to calculate your crypto taxes accurately.

Kryptos Key Features

  • One of the highest integrations available in the market with 2000+ DeFi protocols for importing different crypto transactions
  • Auto-sync of all transaction data via API or custom CSV files from 100+ exchanges and wallets
  • Intelligent detection to categorise all your transactions and analyse them accurately
  • Auto-detection of transactions that can leverage tax-saving strategies like Tax-Loss Harvesting to save crypto taxes
  • Dedicated DeFi and NFT dashboards to track and manage your digital assets portfolio and generate instant reports
  • Mobile app available for easy calculation of your taxes 

Kryptos Pricing

The platform has one of the most affordable packages available in the market along with a free plan which is perfect for beginners.

Here are the 4 available packages on the platform:

  • Freemium- $0/year
  • Hobbyist- $39/year
  • Starter- $69/year
  • Pro- $129/year

Calculating crypto taxes in Canada with Kryptos is as simple as choosing the right plan, linking your wallets and getting started. For more details, refer to Kryptos Pricing.

Wrapping Up

Before you choose a crypto tax software, consider points such as integrations supported, how friendly the UI is, and the pricing. The best crypto tax software in Canada will simplify your legal compliances and save you thousands in taxes.

With Kryptos, you can calculate your crypto taxes with just a few clicks, maximise your savings, and ensure you comply with the CRA tax laws at all times. 

Ready to calculate your crypto taxes in a few minutes? Sign Up Now for free.

FAQs

1. How to file crypto taxes in Canada?

You can file crypto taxes in Canada using these 4 steps:

  • Collect all transaction records from exchanges, wallets, and other platforms. You can do this manually or use crypto tax software like Kryptos. 
  • Calculate capital gains and losses from your transactions.
  • Report your capital gains, losses, and other crypto-related income on the appropriate tax forms.
  • Include these forms with your tax return and submit them to the CRA.

2. Which is the best crypto tax software in Canada?

The best crypto tax software in Canada to help you calculate your taxes in no time and ensure legal compliance is Kryptos. It also uses multiple tax-saving mechanisms to maximise your tax savings.

3. Do you get taxed on crypto in Canada?

Yes, cryptocurrency transactions are subject to taxes in Canada. Capital gains and losses from crypto transactions must be reported in your tax return, along with any income earned from mining, staking, or other crypto-related activities.

4. Are staking rewards taxable in Canada?

Yes, in Canada, staking rewards from cryptocurrencies are considered taxable. The Canada Revenue Agency (CRA) has provided guidance on how various cryptocurrency activities are taxed, and staking falls under these guidelines.

5. How do I report crypto income in Canada?

To report crypto income in Canada, include the relevant information on your tax return, such as capital gains, losses, mining income, or staking rewards. Use the appropriate tax forms, such as Schedule 3 for capital gains and T2125 for business income. 

6. What is better than CoinTracker?

While CoinTracker is a popular crypto tax software, an excellent alternative for your crypto tax in Canada is Kryptos. Compare their features to find the best option for your needs.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Kryptos X RocketX Exchange: Announcement

Kryptos has partnered with RocketX exchange, one of the best crypto aggregator platforms. This partnership is to boost the utility of our platform meteorically, offering RocketX users access to tax assistance and instant tax reports, ensuring a one-size-fits-all solution for crypto traders and investors.

Here’s everything you need to know about this collaboration and the inherent benefits that come with it. Our goal here is to address all your reservations and answer any queries you might have about this collaboration. 

What exactly is the RocketX Exchange?

RocketX is the most advanced hybrid CEX & DEX aggregator that makes it easy to compare prices across 250+ exchanges to help traders with the best prices with every Swap while enjoying 100% ownership of their digital assets.

For dapps & institutions, the platform acts as a middleware by simplifying access to global crypto liquidity via a single API for in-app crypto swaps with best prices and 1-click cross-chain capabilities.

RocketX intends to enhance interoperability between blockchains and drive mass adoption of crypto by simplifying access to all leading blockchains via a single UI and API.

Moreover, it also offers advanced features like 1-click cross-chain swaps between all leading blockchains, decentralized access to deep liquidity on leading CEXs like OKX, Kucoin, Huobi, MEXC, Gate etc. to get users the best rates with the lowest slippage & gas fee.

Users can also swap between wallets with just one click and switch to multiple chains all from within the app or the website.

Here’s why RocketX is preferred over the other centralized or decentralized exchanges.

  • Better Price Discovery- Since RocketX is an aggregator platform, it can help traders discover the best prices across all exchanges.
  • More Efficient- You can track multiple tokens across different exchanges all at once using RocketX.
  • Enhanced Security- RocketX offers 2FA and secure storage to ensure the highest standards of security for its users
  • Self-custody: RocketX is the only platform that allows users to trade across both CEX & DEX and still enjoy 100% ownership of their digital assets. 
  • Better Decision-Making- With access to more data points and a refined data set, users can make better decisions.
  • More Convenient- With access to a centralized dashboard harbouring 12,000+ tokens and advanced features like a customizable dashboard, RocketX offers more convenience.

Explaining the Synergy: Kryptos x RocketX

During the initial discussions around this collaboration, we couldn't help but notice some striking similarities between our brands, while RocketX aggregates token statistics across all exchanges, Kryptos is a transaction list aggregator fetching transactions from across the sea of digital wallets and crypto exchanges to create legally compliant tax reports securely and effortlessly.

And the similarities didn’t end with the operational structure, our vision, goals, and priorities naturally align with each other. That’s one of the biggest reasons why we decided to go ahead with this collaboration, the synergies were evident.

The partnership defines a clear goal, to make crypto investments, portfolio management and taxation convenient for our users, and with our coordinated efforts we will make sure the crypto space will thrive on the concocted utility.

After full integration, RocketX users can easily access their portfolios, categorized historical transactions, profit & loss summaries, and tax reports compliant with their local jurisdiction, while this will make things convenient for investors and traders, it will also assist us in creating more accurate analyses for our customers. 

By making it more convenient and accessible for users to invest and manage their crypto portfolios, our shared cooperation will increase the adoption.

Read Also: Declare Your Cryptocurrency to the CRA: Step-by-Step Guide for Canadians

Where can you find the RocketX exchange on our website?

Kryptos users can access RocketX from our app. 

  • If you use the Kryptos app, you can find RocketX on the top navigation bar of the app.

Here’s what the founders have to say about this collaboration - 

We're thrilled to announce our partnership with the RocketX team. This aligns with our commitment to making DeFi taxes simple and effortless. Our aim with this collaboration is to create a platform that simplifies crypto taxation and investments for everyone. Together, we will be working towards building a brighter future for Web3.”

- Sukesh Tedla, Founder Kryptos

“We’re delighted to collaborate with Kryptos that is addressing one of the burning problems for crypto traders; to be able to easily do tax reporting for their trades across different platforms.

At the same time we are thrilled to be the one-stop solution for their users for crypto trading. This partnership takes us 1 step closer to drive mass adoption of crypto globally.”

- Davinder Singh, Co-founder RocketX

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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EU’s Parliament Approves MiCA Framework For Crypto Regulation

EU Parliament approved the world’s first comprehensive crypto laws for enhanced cryptocurrency regulation in the jurisdiction and protect investor interests

The European Union Parliament passed a positive verdict for the Market in Crypto assets (MiCA) regulatory framework, approving its official implementation in early 2025.

MiCA’s much-needed approval comes after the prominent collapses of big crypto players including FTX, Celsius, and Voyager. The framework ensures the protection of investors from further project failures and has been overwhelmingly accepted in the EU parliament with a vote of 517 for and only 38 against.

Mairead McGuinness, the European Commissioner for Financial Stability, Financial Services, and the Capital Markets Union gladly welcomed MiCA as the world’s first comprehensive crypto rulebook to safeguard investors and create a sustainable market.

MiCA: What It Is And Why It Matters

MiCA, or Market in Cryptoassets, is a new crypto regulation framework which requires crypto asset services providers (CASPs) to gain licenses from legal authorities before entering the EU market. 

It primarily covers crypto assets that are not currently governed by the existing EU laws. For instance, electronic money tokens or asset-referenced tokens fall under the scope of MiCA.

The MiCA will be progressively implemented over the next two years with regulation of stablecoins taking place in July 2024. This will require the crypto providers to have trading caps on non-euro-denominated tokens not backed by fiat currency, and also maintain fund reserves. The broader MiCA rules governing these crypto platforms will come into effect by early 2025.

The European Banking Authority and the European Securities and Markets Authority will be responsible for ensuring compliance by the crypto platforms. They will also look into certain MiCA guidelines before its final implementation.

The rules have been developed for three years as an alternative to the US approach of regulating through enforcement which has been making companies like Bittrex move out of the state.

However, the EU’s decision is being considered to bring a new era in the development of cryptocurrency regulations. For instance, investors can opt for MiCA-approved crypto platforms over others to ensure financial security. This will also attract more crypto service providers to build in the EU market.

What's In The Future With MiCA?

The approval of MiCA as the first regulatory guideline is expected to raise the bar of crypto legislation worldwide. It will also encourage crypto adoption as more consumers can invest in crypto platforms approved by legal authorities.

The “travel rule” used in traditional finance will now also apply to crypto where the exchanges have to provide the sender and recipient information for transactions to authorities. This will also be applicable for transfers above €1,000 from self-hosted wallets. 

Taking about the MiCA implementation, Binance CEO Changpeng Zhao earlier tweeted

“The European Parliament voted for MiCA to be implemented.

This means one of the world’s largest markets is introducing tailored regulations for crypto to protect users and support innovation. 

The fine details will matter, but overall we think this is a pragmatic solution to the challenges we collectively face. There are now clear rules of the game for crypto exchanges to operate in the EU. We’re ready to make adjustments to our business over the next 12-18 months to be in a position of full compliance.”

As of now, crypto lending, NFTs and DeFi are not included in the legislation which still keeps scope for improvement in the current set of laws. 

But even then, MiCA comes as the first step towards a larger global crypto adoption and regulation fostering innovation in this space.

FAQs

1. What is the MiCA rule in crypto?

MiCA, or Market in Cryptoassets, is a new crypto regulation framework which requires crypto asset services providers (CASPs) to gain licenses from legal authorities before entering the EU market. 

2. Has MiCA been passed?

The European Union Parliament passed a positive verdict for the MiCA crypto regulatory framework, approving its official implementation by early 2025.

3. Is Bitcoin covered by MiCA?

MiCA covers crypto assets which are not already governed by existing EU regulations, for instance, e-money tokens or asset-referenced tokens.

4. Is the EU directive for Blockchain?

The EU is building an EU-wide blockchain regulatory framework to ensure uniformity in legislation and to protect consumers while fostering innovation in this space.

5. Is the EU making Bitcoin traceable?

The EU travel rule that is set to be implemented in the crypto will ensure that all transactions become traceable and the CASPs can detect and prevent sanctioned transfers. 

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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9 Common Crypto Accounting Mistakes & How To Avoid Them

Discover the top 9 crypto accounting mistakes that can cost you penalties or extra taxes. Learn more on how to protect your digital assets with this guide

Cryptocurrency has transformed the way we deal with our finances. But this also means that crypto accounting has increasingly become complex. 

It’s easy to make costly mistakes that can affect your finances. In this blog, we'll uncover five common crypto accounting mistakes that you should know to save yourself from losses. We also share some tips to help you avoid them and manage your crypto like a pro.

9 Crypto Accounting Mistakes + Tips To Avoid Them

Are you investing in crypto but not getting the desired results? These 9 accounting mistakes may be costing you extra money. 

Not Tracking Transactions Properly

An essential aspect of crypto accounting is keeping an accurate record of all your transactions. Failure to do so can lead to:

  • Inaccurate financial statements
  • Difficulty calculating capital gains and losses
  • Complications during tax season

Solution?

  • Maintain updated transaction records so that you don’t miss out on taxes
  • Use reliable tracking tools or software to automate your crypto accounting process

Ignoring Tax Implications

Crypto transactions are taxable events that can trigger capital gains or losses. Neglecting these tax implications can result in:

  • Incorrect tax filings
  • Unexpected tax liabilities at the last moment
  • Missing out on tax-saving opportunities
  • Potential audits or penalties

Solution?

  • Understand and comply with your local tax laws and regulations
  • Calculate your gains and losses accurately in your tax returns
  • Seek professional tax advice if needed to ensure legal compliance

Failing to Categorize Crypto Activities

Different crypto activities may have distinct accounting and tax implications. Mixing them up can lead to calculation errors. Common categories to distinguish your crypto activities include:

  • Trading cryptocurrency
  • Investing as an individual or a business
  • Mining crypto
  • Staking crypto for rewards

Solution?

  • Clearly categorize your crypto activities. You can also use crypto tax software to automatically label your transactions from a tax perspective.
  • Understand the specific accounting rules for each category of your crypto activity

Overlooking Lost or Stolen Assets

If unfortunately, your crypto assets are lost or stolen, it's vital to address these incidents in your accounting records. Failing to do so can lead to:

  • Inaccurate financial statements
  • Unclaimed tax deductions or credits
  • Losing tax-saving opportunities and overpaying taxes

Solution?

  • Report the incident to the relevant authorities
  •  File the details surrounding the loss or theft in your tax returns
  • Adjust your records to reflect the change in your holdings and claim deductions

Ignoring Fees

Fees often become a confusing factor while calculating the cost basis of crypto assets. If the fees are not taken into account correctly, it can cause:

  • Inaccurate calculations of the cost basis and in turn the gains or losses incurred.
  • Misreported taxable income
  • Higher tax liabilities which may remain unrealized

Solution?

  • Keep track of all fees associated with your transactions
  • Include fees in your cost basis calculations
  • Claim fees as deductions from your gains, or as defined by your local tax laws

Keeping Crypto in Different Online Wallets

Storing your crypto assets in online wallets can expose you to unnecessary risks. These include:

  • Cybersecurity threats, such as hacks or phishing attacks
  • Loss of assets due to third-party negligence
  • Missed out transactions between different wallets

Solution?

  • Use hardware wallets or other secure offline storage options
  • Implement multi-factor authentication for online wallets
  • Regularly review the security of your chosen wallet provider
  • Use crypto tax software like Kryptos to automatically track all the transactions from and between all your wallets. 

Forgetting Crypto Passwords or Seed Phrases

Losing access to your crypto assets due to forgotten passwords or seed phrases can result in:

  • Permanent loss of the crypto assets
  • Inability to accurately report holdings or taxable events
  • Unclaimed tax deductions or credits

Solution?

  • Securely store your passwords and seed phrases in a safe location
  • Regularly update your passwords and backup your seed phrases
  • Consider using a password manager for added security

Wrong Wallet Address

Sending crypto assets to the wrong wallet address can lead to unintended consequences, such as:

  • Irretrievable loss of your assets
  • Inaccurate financial records and tax calculations
  • Misreported crypto taxes

Solution?

  • Double-check wallet addresses before initiating transactions
  • Use QR codes or copy-paste functionality to reduce errors
  • Confirm the transaction details with the recipient if possible

DIY Accounting Without Expertise

Crypto accounting can be a complex task, especially for those without prior experience. Attempting to manage it all by yourself may result in:

  • Errors in calculations and record-keeping
  • Misinterpretation of tax laws and regulations
  • Increased risk of audits and penalties

Solution?

  • Use reputable crypto accounting software to simplify your taxation
  • Consult a professional accountant to help you report your taxes correctly
  • Continuously educate yourself on evolving crypto accounting practices

Final Thoughts

Remember to stay informed and proactive while managing your crypto accounting to minimize risks and maximize rewards.

By avoiding these nine common crypto accounting mistakes and implementing the solutions, you can simplify your crypto tax reporting and also save taxes. 

FAQs

1. Why do we need cryptocurrency?

Cryptocurrencies offer several advantages over traditional financial systems, including decentralized control, lower transaction fees, and increased privacy. They also enable global transactions and access to financial services for those without access to traditional banking systems.

2. What is cryptocurrency trading?

Cryptocurrency trading involves buying, selling, or exchanging various digital assets on crypto exchanges or other platforms. Traders typically aim to profit from market fluctuations by anticipating price movements or employing trading strategies.

3. What is crypto accounting?

Crypto accounting refers to the process of tracking, recording, and reporting transactions and holdings related to digital assets. It includes calculating capital gains and losses, understanding tax implications, and ensuring compliance with relevant laws and regulations.

4. How should I avoid mistakes in crypto accounting?

To avoid mistakes in crypto accounting, maintain accurate records of transactions, categorize your crypto activities, stay informed about tax implications, and seek professional help if needed. Utilizing crypto accounting software can also help minimize errors.

5. How to avoid getting rekt by crypto taxes?

To avoid issues with crypto taxes, stay informed about your local tax laws and regulations, accurately calculate your gains and losses, and report your taxable events correctly. Seeking professional tax advice and using specialized tax software can help ensure compliance and minimize tax liabilities.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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What are NFTs, and Why Are They Insanely Popular?

What are NFTs and why are they so popular? Take a look at what Non-Fungible Tokens are, and some NFT use cases that make people so interested in them.

Non Fungible Tokens, you most likely have heard about them but do you understand the concept of art selling in the digital space for a tiny fortune. If you understand what NFTs are, the reason why they exploded out of the block and became insanely popular might be harder to come by. 

2021 was the year NFTs exploded but like all things crypto, the period they go mainstream is usually distant from when they started gathering momentum. In this piece, we will look at NFT holistically and also try to demystify its insane popularity. 

What are NFTs? 

NFT is an abbreviation for Non-Fungible tokens. So, what are Non-Fungible tokens, and why is everyone getting crazy about them? 

A non-fungible token (NFT) is a type of cryptographic token on a blockchain that represents a class of unique assets. These can either be entirely digital assets or tokenized versions of real-world assets. As NFTs are not interchangeable with each other, they may function as proof of authenticity and ownership within the digital realm. 


I'm sure that doesn't really make it clearer but I will break it down a little:

Fungibility implies that an asset's units are interchangeable and essentially indistinguishable from each other. For example, fiat currencies are fungible because each unit is interchangeable with any other equivalent individual unit.

The ability that makes money to be interchangeable and a legal tender are referred to as fungibility. For every time you take out fifty units of your currency and you are given five pieces of ten units of the same currency, you have fungibility to thank for that. 

Today, there is increasing attention being paid to Non-fungible tokens and the potential it holds in revolutionizing the arts and systems of ownership.  Non-fungible tokens (NFT) have become digital assets that represent a wide range of unique tangible and intangible items, from collectable sports cards, trivia items to virtual real estate and even digital sneakers. 

The Underlying workings of Non-Fungible Token 

What this then implies is that an item referred to as an NFT is hosted and housed on the blockchain and only one piece of that item can be made. The blockchain makes sure of this. NFTs follow the same protocol as other cryptocurrencies and as such their creation, existence and ownership are proven by the blockchain. 

It must be said at this point that if you purchase an NFT, you are not purchasing the digital asset as it were. This is because your NFT can still be downloaded depending on how the NFT is tokenized. Think of it as purchasing an album off Spotify, yes, you can listen to the album, but someone owns it. It is the same way when someone uses a digital copy of an NFT that is owned by someone else. 

What you are purchasing then is a digitally-authenticated note that the asset is owned by you and you alone. It is that right that is transferrable and that is what you are really purchasing when you buy an NFT.

NFT addresses the issue of ownership in the digital space. By purchasing an NFT, the blockchain records you as the one who has the token. It does not mean that the artwork cannot be used elsewhere; in fact, you will most likely see the artwork you own on the internet if it is popular enough. What matters is that you own it. That is what NFT is about. 

What can be NFT? 

Anything can be NFT; literally, anything, from music, Virtual furniture to Times Magazine Covers NFT is an interesting field. Already, we have seen crazy auctions for NFT arts, from Beeple Insane sale of a $69 million NFT art to the Gucci Ghost that was purchased for $3,600  

Why are NFTs insanely popular? 

NFTs are not new, the first set of NFTs to hit the market was called Colored Coins; they were basically bitcoin tokens that had the functionality that could allow them to represent other tokens and assets on the blockchain. This was in 2012. However, Coloured Coins are not considered true NFTs for everyone.

The first recognized NFTs were released as part of Etheria, a 33-by-33 3D map of 457 purchasable and tradable hexagonal tiles upon which small structures can be built with Lego-like bricks. Version 1.0, with internal trading mechanisms that appear to be non-functional, was deployed to the Ethereum main net on October 21st, 2015. Version 1.1, released on Oct 29th.  According to OpenSea most of the NFTs went unsold. 

It would take another five years before NFTs would come yet again to the public consciousness. This was via cryptopunks and cryptoKitties, they were so popular that they ended up clogging up the Ethereum Blockchain. That was not the only part though – people made a lot of money flipping cryptokitties

It was until the global lockdown of 2020 that NFT came again to the mainstream and now, we can be certain that it is not going anywhere again. More than any other thing, the boom of NFTs have shown us that there is an unpredictable adoption culture when it comes to new technologies. 

NFTs became insanely popular on the premise of scarcity, like several other components of crypto and other technological business models, NFTs feed off emotions. During the lockdown, the digital shift happened and with it the rise of NFT. During the lockdown, the interest in trading cards boomed and with it NFTs. The digital collectible market of NFTs grew a whopping 26 Times based on Year on Year growth compared to Q1 2020. It did an entire $1.4 Billion in sales. 

With the advent of GameFi and other play-to-earn structures within the metaverse, forecasts are clear enough to show that while sales might drop, NFTs are not going anywhere. It will always be a part of our world as we have come to know it at this present time. Even the Forbes Tech Council agrees.

Do you think NFTs are the next best investment? Let us know in the comments on our instagram and facebook pages!

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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India Works Towards Crypto Legalisation with 30% Tax

India is working on legalising crypto with a 30% tax rate, a big step forward for the Indian crypto industry. Here’s everything about crypto taxation rules in India.

On 1st February India’s Finance Minister Nirmala Sitharaman, mentioned in her speech about India’s budget for 2022-2023, the “phenomenal increase in transactions in virtual digital  assets.”. With India’s exponential growth of crypto transactions the past year, the government's attention to it was expected. In her speech she proposed 30% taxation on any income from the transfer of digital assets, and also introduced 1% of  tax deduction at source for every transaction made beyond a threshold limit. If any losses are made however, no deductions can be made as the “loss from transfer of virtual digital assets cannot be set off against any other income.” according to the budget proposal.

Finance Minister Sitharaman also proposed that the reserve bank would come up with a new digital rupee by 2022-2023. The CBDC (Central Bank Digital Currency)  would be powered by the blockchain technology once it begins trading and will remain permanent. Sitharaman said that the introduction of the digital rupee “will give a big boost to digital economy,” and that “Digital currency will also lead to a more efficient and cheaper currency management system. “.

This is a big step away from The Cryptocurrency and Regulation of Official Digital Currency Bill, that from previously published texts we have understood it was planned to “ban most private cryptocurrencies” except for certain assets meant to promote the “underlying technology of cryptocurrency and its uses”.

This government proposal shows a big shift in how the government views cryptocurrency and its legitimacy. Instead of banning cryptocurrency, their outlook on crypto assets seems to have shifted to the regulation of it instead, enabling the legal investments and usage of crypto to billions of people. This is an interesting change of expected events and it might even lead to more countries considering the exploration of CBDCs.

What do you guys think? Let us know in the comments on our instagram or facebook!

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Binance Taxes Canada: Does Binance Report to CRA?

Are Binance transactions taxable in Canada? Does Binance report to the CRA? Discover all the facts and learn how to report your Binance taxes to the CRA in Canada.

Binance is a cryptocurrency exchange that has quickly gained popularity among crypto traders worldwide, thanks to its vast selection of digital assets, advanced trading features, and competitive fees. 

But what are its tax implications in Canada? Does Binance report to the CRA? If you are also wondering how Binance operates in Canada, this article will answer all your questions and discuss how to report your Binance taxes accurately to comply with Canadian tax laws.

What is Binance?

Binance is a leading cryptocurrency exchange platform founded in 2017 by Changpeng Zhao. It’s the largest crypto exchange in the world in terms of daily trading volume of cryptocurrencies.

The platform allows users to buy, sell, and trade a wide range of cryptocurrencies, including Bitcoin, Ethereum, and many others. Binance has also developed its own cryptocurrencies: Binance Coin (BNB) and BinanceUSD (BUSD). 

As of 2023, the company operates globally except for the USA. To serve its U.S.A. users, it has a different subsidiary – Binance.US.

Overview of Binance Taxes in Canada

Binance is a global cryptocurrency exchange that operates in multiple countries including Canada (except Ontario). It works closely with the tax authorities to ensure its users comply with Canada's tax laws and regulations

Canadian investors are not exempted from their tax obligations related to cryptocurrency transactions conducted on Binance. So, you have to report any profits on your crypto assets that you make using Binance.

CRA and Binance Taxes

The CRA considers cryptocurrencies as commodities. So, you are subject to either capital gains tax or income tax, depending on the nature of your crypto transaction, and you must file your Binance tax report accordingly.

  • If you are trading cryptocurrencies as an individual, any gains or losses realized will be treated as capital gains or losses.
  • If you make crypto transactions as part of a business, your gains or losses will be considered business income or losses.

While you have to pay taxes on 50% of your capital gains, you are liable to pay business income tax on 100% of your profits.

This same rule applies to any profits that you make on any crypto transactions using Binance. The CRA has defined specific reporting requirements that need to be abided by Binance users at all times. Failure to comply with the laws or any inaccuracy in reporting can lead to heavy penalties.

Does Binance Report to Tax Authorities?

Binance has implemented Know Your Customer (KYC) requirements in 2021. This makes it likely that Binance may provide its user information to the Canadian government authorities if requested. 

The platform follows all regulations defined by CRA and takes necessary steps to maintain transparency with the legal authorities. It is therefore advisable to report all your Binance transactions accurately to comply with Canadian tax laws.

How to Report Taxes for Binance Users?

You can report your crypto transactions to the CRA following these 4 steps:

  • Maintain accurate records: Keep track of all your crypto transactions including the date, and value of the crypto at the time of purchase, as well as any fees incurred. You can also use crypto tax software like Kryptos to do it automatically for you.
  • Calculate your gains or losses: To calculate your gains or losses, determine the cost of acquiring the cryptocurrency and subtract it from the selling price. Any profit made is either considered capital gains or business income. 
  • Complete the appropriate forms: Fill out the Schedule 3 Form to report your capital gains and losses. If you want to report your business income, use Form T2125.
  • Report foreign assets: As per CRA, you must file Form T1135 if the cost amount of your foreign property exceeds $100,000 at any time during the year.

How to File Binance Taxes in A Few Minutes

To report Binance taxes accurately, you can follow the above-given steps including tracking your transactions, calculating crypto gains, claiming the losses, and filling out the right forms. 

You can do all of these manually. But that can take days to complete and have errors, making you overpay your taxes or miss any taxable transactions.

Luckily, there’s an easier way to automatically calculate your Binance taxes in a matter of minutes. Here’s how you can do it using Kryptos:

  •  Sign Up on the Kryptos platform. 
  • Add your wallets to import your transaction history. Import your transactions directly using API keys or upload CSV files.
  • Choose your currency and cost-basis method from the account settings. This helps in accurate tax calculations and ensures the reports are compliant with CRA.

You are now ready to calculate your crypto taxes – check for your capital gains and losses in the dashboard and leverage tax-loss harvesting opportunities to save taxes. You can also identify errors or warnings and fix the issues accordingly. Once done, generate and download your crypto tax reports.

Ready to calculate your Binance taxes? Get Started Now for free.

FAQs

1. Does Binance report to tax authorities?

Binance complies with relevant tax laws, reporting taxable transactions to authorities as required. It is the responsibility of users to act in compliance with the laws and accurately report their crypto-related income.

2. Is Binance taxable in Canada?

Yes, transactions on Binance are taxable in Canada. Canadian investors are required to report their crypto transactions and any gains or losses that they have incurred to the CRA. 

3. Does CRA audit crypto?

Yes, the CRA can audit cryptocurrency transactions to ensure tax compliance among crypto users. Canadian investors must maintain accurate records of their transactions and report them to the CRA to avoid potential audits and penalties.

4. Can CRA track crypto?

The CRA does not have direct access to track individual cryptocurrency transactions on decentralized networks. However, they can request or subpoena information from cryptocurrency exchanges, financial institutions, or individuals during audits or investigations. Additionally, many cryptocurrency exchanges, especially those operating in Canada or serving Canadian residents, may be required to provide transaction details to the CRA under certain conditions.

5. Is Binance legal in Canada?

Since May 2023, Binance has ceased operations in Canada. If you wan to use Binance from Canada, you will need to use a VPN.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Fractional NFTs (F-NFT): What They Are And How They Work

A fractional NFT allows multiple users to enjoy the ownership rights of an NFT while making it a more affordable investment

While traditional NFTs have been popular for some time, fractional NFTs (F-NFTs) are now emerging as a new way to invest in NFTs. 

In this blog, we will explore what F-NFTs are, how they work, and their pros and cons. By the end of it, you’ll learn everything you need to know to decide if you should be interested in this new NFT investment approach.

What Are Fractional NFTs?

Fractional NFTs are a way to divide ownership of an NFT into smaller, more affordable units. By breaking an NFT into smaller units, you can buy a fraction of the NFT and still gain exposure to the asset without having to purchase the entire NFT.

How F-NFTs Differ From Traditional NFTs?

The main difference between traditional NFTs and F-NFTs is that fractional NFTs can be owned by multiple people. The concept is similar to real estate investment trusts (REITs) that enable investors to own a fraction of a high-value property.

NFTs are generally created on the Ethereum Blockchain using the ERC-721 or ERC-1155 token standard. On the other hand, ERC-20 token standard are used to create fungible tokens that are interchangeable.

To create F-NFTs, smart contracts are used to generate ERC-20 tokens linked to an ERC-721 standard NFT. The number of ERC-20 tokens held by an owner is directly related to their ownership percentage in the NFT.

The Role Of Smart Contracts In Fractional NFTs

Smart contracts are self-executing contracts that facilitate transactions between parties. In the case of F-NFTs, smart contracts enable NFT fractionalization by dividing the ERC-721 non-fungible asset into smaller fungible units (ERC-20 tokens). 

These smart contracts can also be used to manage ownership rights and distribute profits to investors based on their fractional NFT ownership.

This reduces the need for intermediaries. It also ensures transparency and security by recording transactions on a blockchain. 

Use Cases Of Fractional NFTs

Fractional NFTs have various use cases for collectors, investors, and artists including:

Diversification Of Investment

Fractional NFTs provide investors with a way to diversify their investment portfolios. By purchasing fractions of different NFTs, you can spread the risk across multiple assets and gain exposure to a wider range of markets.

Ability To Own High-Value Assets

F-NFTs enable fractional ownership of high-value assets, such as rare artwork, luxury goods, or expensive collectibles. You can enjoy the assets without having to pay a hefty sum to own them.

NFT Collectibles And Memorabilia

NFTs have been used for collectible items and memorabilia, such as sports memorabilia, movie props, or historical artefacts. Fans and collectors can own a piece of history or their favourite sports team without having to purchase the entire item.

Monetization For Artist And Content Creators

F-NFTs make it easier for artists and content creators to sell their digital content, such as music, videos, or artwork in the form of NFTs. This enables creators to monetize their content by selling fractions of their NFTs to multiple investors.

Real Estate

Fractional NFT has also found its way into real estate, enabling investors to purchase fractions of high-value, real-world properties. This can provide investors with access to real estate markets that were previously inaccessible due to high entry barriers.

Benefits Of Fractional NFTs

  • More Investment Opportunities: F-NFTs provide investors with access to a wider range of markets and investment opportunities, enabling them to diversify their portfolios.
  • Determining The Right Price: It is hard to find out the actual price of an NFT without any transaction history. More people can trade fractional NFTs due to their lower price, which makes it easier to estimate the NFT’s real value.
  • Reduced Risk: Fractional ownership of an NFT reduces the risk associated with owning the entire asset. If the value of the NFT decreases, the impact on the investor's portfolio will be smaller.
  • Improved Liquidity: Fractionalizing NFTs makes them more affordable. This can increase liquidity by making it easier for investors to buy and sell fractions of the NFT.

Challenges Of Fractional NFTs 

Like any other thing in the world, F-NFTs do not come without their own challenges. Here are the two most significant risks to consider while owning a fractional NFT.

Reconstitution

When a fractional NFT is created, the NFT is divided into smaller pieces, and each piece is owned by a different investor. 

If one investor wants to sell their entire ownership stake in the NFT, the NFT fractions need to be reconstituted back into a single NFT so that it can be sold as a whole. This is due to the fact that the fractions alone may not be able to solve the NFT’s intended purpose. 

The only way is to buy back the fractions from their owners which can become an issue if the fractional owners do not agree to sell the NFT.

Buyout Auctions

Many F-NFTs have smart contracts that can be triggered by one of the fraction holders or a potential buyer to reconstitute NFTs via buyout auctions. While this is a possible solution to reconstitution, the downside is you can lose your fraction of the NFT even when you don’t want to sell it.

For example, Let's say there's a rare piece of digital artwork that is represented by a fractional NFT, with 5 different investors owning 20% of the NFT each. One of the investors wants to sell their entire ownership stake in the NFT and transfers the needed ERC-20 tokens into the smart contract. 

So, the smart contract triggers the buyout auction as the F-NFTs need to be reconstituted back into a single NFT.

To keep the fractions, the other four fractional owners need to outbid the potential buyer. This means you have to pay a higher price to keep the same fraction of the NFT.

In case, the buyer wins, all the fractions are automatically reconstituted into a single ownership of the buyer. The other owners are paid a certain percentage of the sale price depending on their holding size.

Conclusion

Fractional NFTs are an innovative way to invest in non-fungible tokens, making traditional NFTs more affordable for investors. Investors can gain exposure to high-value assets and diversify their portfolios across a wider range of markets. On the other hand, creators can monetize their NFTs better as F-NFT opens the door to more buyers.

FAQs

1. What is a fractional NFT?

A fractional NFT represents a portion of a traditional ERC-721 NFT, enabling multiple investors to own and trade small pieces of a single NFT.

2. How do fractional NFTs work?

Fractional NFTs work by using smart contracts to divide a single non-fungible token (NFT) into smaller fungible parts in the form of ERC-20 tokens, allowing multiple investors to purchase and trade fractional ownership stakes in the asset.

3. What’s the Difference Between F-NFTs and Traditional NFTs?

The main difference between F-NFTs and traditional NFTs is that F-NFTs are the fractional parts of a single non-fungible token, whereas traditional NFTs represent a single, indivisible asset (ERC-721 token standard).

4. Why Are Fractional NFTs Necessary?

Fractional NFTs enable more people to invest in NFTs by making these assets more accessible and liquid. F-NFTs also allow investors to diversify their portfolios, by investing in multiple high-value NFTs with smaller amounts of capital.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Long-Term vs. Short-Term Capital Gains Tax on Crypto

Taxation on capital gain depends on whether it's long-term or short-term. Here's your ultimate guide for long-term vs. short-term capital gains for crypto taxes.

If you have sold or disposed of your crypto over the past year, you may be subject to capital gains taxes. It is important to understand how different capital gains taxes work to file your crypto taxes correctly and minimize the bill.

In this article, we discuss all the basics you need to know about capital gains and a detailed guide to long-term vs. short-term capital gains taxes for your crypto. 

What is Capital Gains Tax on Cryptocurrency?

The profit that you earn anytime you dispose of your crypto is your capital gains. Since crypto is viewed as a form of capital asset, you need to pay capital gains taxes on the profits you have made from disposing of your asset. For instance, if you buy BTC for 1000$ and sell it at 1500$, the profit of 500$ is your capital gains. However, if you buy BTC for 2000$ but later sell it for 1200$, the difference of 800$ is considered a capital loss and can be used to offset your taxes.

There are three disposals of crypto where you earn capital gains:

  • Selling cryptocurrency for fiat
  • Trading one crypto for another crypto
  • Using crypto to purchase goods or services

Understanding Long-Term vs. Short-Term Capital Gains Tax on Crypto

As per IRS, you are taxed differently on your crypto assets based on how long you have held them. If you sell your crypto in less than a year, your capital gains taxes are considered short-term. In case you hold your crypto for more than twelve months, your taxes fall under the long-term capital gains taxes. Both of these types of capital gains taxes have different tax rates depending on the period of Holding, filing status, and your income bracket for the year.

Taxable Events for Your Crypto

As discussed above, there are three ways to dispose of your crypto assets that trigger capital gains taxes. Let’s look at them in detail.

  • Selling Crypto- You are taxed on your capital gains when you sell your crypto for fiat currency. For instance, if you buy BTC for $1000 and then after eight months sell it for $1200, a short-term capital gains tax is applicable on your profit of $200. The same applies even if the transaction falls under the long-term capital gains category.
  • Trading One Crypto For Another- This event is triggered when you exchange one crypto for another crypto asset. For example, if you buy BTC for $1000 and when it reaches $1200, you exchange it for ETH, the capital gains of $200 on your BTC is taxable.
  • Spending Crypto To Buy Goods And Services- As per IRS, using cryptocurrency for purchasing goods or services is taxable. Let’s say you buy Bitcoin worth $500 and after 5 years the value of the same reaches $10,000. If you now use this crypto to buy a house, you incur taxable long-term capital gains of $9500.

Crypto Capital Gains Tax Exceptions

Non-fungible tokens (NFTs) are an exception in the capital gains category as they are subject to a fixed 28% tax rate regardless of the holding period. This must be kept in mind as you may need to pay higher taxes while buying or selling NFTs. The Net Investment Income Tax (NIIT) also adds a 3.8% tax surcharge to individuals with a modified adjusted gross income of more than $200,000 and $250,000 for married couples filing jointly. Your state may also have separate tax rates from the federal depending on your location.

Crypto Capital Gains Tax Rate for 2023

There isn’t any fixed capital gains tax rate for your crypto assets. Depending on whether your assets fall under the long-term or short-term capital gains category and your income for the year, the tax rate may vary.

Here’s a breakdown of the crypto tax rates for the financial years 2022 and 2023 respectively.

Short-Term Capital Gains Tax Rate

Your short-term capital gains tax on crypto are based on the Federal Income Tax rates and are the same as the rates on your taxable income. It ranges from 10-37% tax rate depending on your income and filing status.

For the year 2022, the tax rates are:

Here are the tax rates for the financial year 2023 (taxes due in April 2024):

Long-Term Capital Gains Tax Rate

If you hold your crypto assets for more than a year, you are taxed under long-term crypto tax rate which is lower for most investors. If your income is less than $41,676 including your crypto, you don’t have to pay any long-term capital gains tax. If you earn more than the mentioned income, you are subject to a tax rate of 15% or 20% depending on your taxable income and filing status.

Here’s the long-term capital gains tax rate for the 2022 financial year.

For the financial year 2023, here’s the tax rate for long-term capital gains on crypto

Calculate Crypto Capital Gains Tax

Now that you understand the difference between long-term vs. short-term capital gains taxes, the next question arises - how do you calculate crypto capital gains?

To do this, you need to first find out your cost basis. This value is simply the amount you spent acquiring the crypto including any transaction fees. If you didn’t spend anything to acquire the crypto, in case it was gifted to you, consider its fair market value on the day you received it as your cost of acquisition.

Your capital gain or loss is the difference between the crypto disposal value and your cost basis.

Looking to calculate your crypto taxes in seconds and reduce your tax bill? Use crypto tax calculators like Kryptos to avoid manual calculations and prevent errors. Simply import all your transactions and leverage automated functions to save huge taxes on your crypto. Once done, you can generate free tax reports that comply with your local laws. 

FAQs

1. What's the difference between long-term and short-term capital gains on crypto?

Long-term capital gains arise when you dispose of your crypto assets after holding them for more than twelve months. In contrast, short-term capital gains are applicable when you sell or trade your crypto within a year of acquisition. The tax rates for these two categories differ based on the holding period, your income bracket, and filing status.

2. How are long-term vs. short-term capital gains taxed for cryptocurrency transactions?

Short-term capital gains on crypto are taxed based on Federal Income Tax rates, which are the same as your regular taxable income rates, ranging from 10-37%. Long-term capital gains, on the other hand, enjoy more favorable tax rates, often lower for most investors, ranging from 0% to 20% based on your taxable income and filing status.

3. Which crypto transactions trigger long-term vs. short-term capital gains taxes?

Selling cryptocurrency for fiat, trading one crypto for another, and using crypto to purchase goods or services are the primary transactions that can trigger capital gains taxes. The classification as long-term or short-term depends on how long you've held the crypto before the disposal.

4.Are there any exceptions to the standard long-term vs. short-term capital gains tax rates for crypto?

Yes, Non-fungible tokens (NFTs) are an exception. They are taxed at a fixed 28% rate regardless of the holding period. Additionally, the Net Investment Income Tax (NIIT) may add a 3.8% tax surcharge for certain high-income individuals.

5. How can I calculate my long-term vs. short-term capital gains on crypto?

To calculate your capital gains, determine your cost basis, which is the amount you spent acquiring the crypto, including any transaction fees. Subtract this cost basis from the disposal value of the crypto to get your capital gain or loss. Tools like crypto tax calculators can automate this process and ensure accuracy.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Share Pooling Crypto In The UK: How To Calculate Crypto Gains

HMRC considers crypto as an asset with specific share pooling rules to calculate capital gains. Discover the tax implications of share pooling crypto in the UK.

The HMRC recognises crypto as an asset which means individuals need to pay capital gains taxes on any profit made on its disposal. To do this, HMRC has defined clear guidelines on how to calculate your crypto taxes in the UK.

In this article, we’ll discuss the laws set by HMRC for calculating your capital gains including Share Pooling, Same Day rule, and 30 Day rule. To learn more about UK taxes, refer to our UK Crypto Tax Guide.

What Is Share Pooling Crypto?

Share pooling, also called share matching, is a UK-specific cost-basis method defined by HMRC to calculate crypto taxes for similar tokens. Instead of calculating the capital gain or loss for individual transactions, the same type of crypto is kept in a ‘pool’ (or section 104 pool).

The cost basis for each crypto token acquired at different points of time goes into the pool to create the ‘pooled allowable cost’. This is used to calculate the capital gains or losses when you sell some of the assets in the pool.

Please note that the HMRC describes NFTs as “separately identifiable” so they are not pooled.

How To Calculate Capital Gains Using Share Pooling Rules?

To determine crypto taxes using a share pooling cost basis, you need to consider the following three rules.

  • The Same Day Rule
  • The 30 Day Rule, also called Bed and Breakfasting Rule
  • Section 104 Holding

The Same Day Rule

When you dispose and acquire tokens on the same day, you will use the average cost basis of all the tokens purchased on that day and the average sale price to calculate your capital gains or loss. 

  • All the acquired tokens are treated in a single transaction
  • All the token disposals are treated in a single transaction

Your cost basis is the average of all the purchases you make on the day The acquired tokens are matched with the disposed of quantity as much as possible to avoid sending them into the section 104 pool.

If the disposed of tokens exceeds the acquired quantity, the excess tokens will be considered for the second rule – the 30 day rule.

Let’s consider an example to understand this better.

Noah acquired 1.2 bitcoin for £7000 in November 2019 and 0.3 bitcoin for £2300 in April 2020. 

It is considered that Noah has a single section 104 holding of (1.2+0.3) = 1.5 bitcoin and a total allowable cost of £9300 for the pool.

Average cost basis: 9300/1.5 = £6200/ bitcoin

Now, Noah sells 0.5 bitcoin for £5000 in October 2022. He buys back 0.3 bitcoin on the same day for £2900. Here, the Same Day rule gets applied.

The acquired tokens are matched with the disposed of quantity first and then applied to the shared pool.

Cost basis (of acquired tokens falling under same day rule): £2900

Cost basis (of remaining disposed of tokens): 0.2 * 6200: £1240

Total cost basis (considered for calculating capital gain or loss): £ (2900+ 1240) = £4140

So, the capital gains realized (Selling price - cost basis): £ (5000 - 4140) = £860

The 30 Day Rule (or, Bed and Breakfasting Rule)

When you dispose of tokens and then acquire the same type, in the same quantity within the next 30 days, you will calculate the cost basis of the disposed of tokens using the FIFO method. This is also called the ‘bed and breakfasting’ rule.

This rule prevents investors from using the crypto ‘wash sale’ – where the crypto is sold at a lower price to realize a capital loss but is repurchased to maintain the asset quantity while avoiding crypto taxes

If the disposal quantity is more than the number of acquired tokens within 30 days, the remaining assets are considered in the section 104 rule.

Let’s use the above example of Noah to understand this. 

Noah purchases 1.2 bitcoin for £7000 in November 2019 and 0.3 bitcoin for £2300 in April 2020. 

So, Noah has a single section 104 holding of (1.2+0.3) = 1.5 bitcoin and a total allowable cost of £9300 for the pool.

Average cost basis: 9300/1.5 = £6200/ bitcoin

Now, Noah sells 0.5 bitcoin for £5000 in October 2022. He buys back 0.3 bitcoin on the same day for £2900. Here, the Same Day rule gets applied. 

The acquired tokens are matched with the disposal quantity before sending the excess to the 30-day rule or the section 104 pool, whichever is applicable.

Cost basis (of acquired tokens falling under same day rule): £2900

However, he also purchases 0.1 bitcoin for £850 10 days later. This transaction falls under the 30 day rule.

Cost basis (of acquired tokens falling under 30 day rule): £850

Cost basis ( of remaining 0.1 bitcoin falling under s104 pool): (0.1 * 6200) = £620

Total cost basis: (2900+850+620) = £4370

So, the capital gains earned by Noah: (5000 - 4370) = £630

Section 104 Holding Rule

Under this rule, you should calculate the cost basis of a given pool of assets using the average cost basis method. This is then used to calculate your capital gains or losses.

  • To calculate the average cost basis of the pooled assets, find out the total cost basis of all the crypto before disposal and divide it by the number of the assets
  • To calculate your sale price, multiply the average cost basis by the number of disposed of crypto
  • Use it to calculate your capital gain or loss for the given crypto pool

The s104 pool is the total of all the crypto assets that doesn’t fall under the same day or 30 day rule. The same crypto assets are considered to be in the same pool.

Summarising The Share Pooling Process

Here’s the step-by-step process as defined by HMRC:

  • If you dispose of crypto and then buy it back, in the same quantity, within the next 30 days, then the same day rule is applied first if applicable
  • The remaining acquired tokens to which the 30 day rule applies are matched to the disposed of tokens and don’t go into the s104 pool 
  • If the quantity of tokens acquired exceeds the disposed of quantity in the next 30 days, the excess goes into the section 104 pool.

How Kryptos Can Help Calculate Your UK Crypto Taxes

While the above-stated rules look straightforward, keeping track of multiple transactions for different asset pools can quickly turn complicated. 

Kryptos’s crypto tax calculator automatically does this all for you in a matter of minutes. 

All you need to do is:

  • Go to the settings and choose your base currency, country and cost basis method. 
  • Import your transactions and let Kryptos do the calculations for you

You can view and manage your DeFi portfolio to gain better clarity on your tax position, and generate UK-specific reports that comply with HMRC rules.

To learn more, Sign Up on Kryptos for free now.

FAQs

1. What is the 30-day rule in crypto?

The 30-day rule applies when you sell crypto and buy the same assets back within 30 days. Here, you will calculate the cost basis of the disposed of tokens using the FIFO method.

2. What is the Section 104 holding rule?

Under this rule, you should calculate the cost basis of a given pool of assets using the average cost basis method. It is then used to calculate your capital gains or losses. The s104 pool is the total of all the crypto assets that don’t fall under the same-day or 30-day rule.

3. What is the same-day crypto rule?

When you dispose of and acquire tokens on the same day, you will use the average cost basis of all the tokens purchased on that day and the average sale price to calculate your capital gains or loss. The disposal crypto amount is matched with the purchased amount to determine gains or losses, before applying the Section 104 holding to the excess tokens.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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The Ultimate NFT Tax Guide 2023

Here's the latest NFT tax guide you must know to file your crypto taxes with ease.

If you have bought, sold, traded, or staked NFTs in 2022, you might owe some taxes to the IRS, if you are a resident of the United States. The IRS released the Tax Filing Guide for the year 2022 on December 19th, putting forth new crypto and NFT tax guide. 

The term “virtual currency” has been replaced with “digital assets” grouping NFTs and cryptocurrencies together to avoid the box ‘0’ loophole on form 1040.

To file your taxes this year, you will have to fill out forms 8948, and 1099-MISC in addition to filling out form 1040.

I know it looks complicated, but bear with me because it isn’t. We will run through everything new there is to know about NFT taxation and break down the process of filing your taxes one step at a time. 

P.S. : We will also look at some strategies to minimize your NFT taxes.

So Let’s hop in…

What is the new NFT tax guide?

A new section titled “Digital Assets” on the 16th page of the Tax Guidelines Report explicitly states:

“Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.”

It is evident that the Internal Revenue Service (IRS) considers NFTs to be a form of property, similar to cryptocurrencies. In other words, disposing of digital assets, such as through a sale or exchange, may result in tax obligations, just like with any other type of property. This is because such transactions may result in capital gains or losses that must be reported to the IRS.

The recent mandate has provided a clearer understanding of NFTs and established a more defined framework for their taxation. The tax rate for NFTs is not fixed and may vary based on factors like mode of purchase, duration held, and amount of gains or losses incurred upon disposal. 

How to report your NFT taxes to the IRS?

To determine the amount of taxes owed to the IRS, you will need to itemize all of your NFT transactions on form 8949 and then use the standard deduction chart at the end of the form to calculate the tax due.

Form 8949: To Disclose all Digital Asset Transactions

Form 8949 is the first form you need to fill out once you start filing your taxes for the year. Form 8949 has been specifically designed to accommodate all digital asset transactions and assist with the calculation of taxes owed on these types of transactions.

Similar to how crypto transactions are taxed, NFT taxes are divided into two categories.

  • Long-Term Capital Gains Tax
  • Short-Term Capital Gains Tax

Any NFT that you have held for more than 12 months before disposal is taxed in accordance with the long-term capital gains tax rates, and NFTs disposed in under 12 months incur short-term capital gains tax.

Form 8949 is divided into two sections i.e., Part-I for Short-Term Digital Asset Transactions, and Part II for Long-Term Digital Asset Transactions. 

Short-term capital gains tax varies from 10-37% based on your income level. Here’s the standard deductions table for short-term transactions:

Long-term capital gains tax varies from 10-20% based on your income level. Given below is the standard deduction table for long-term transactions:

Note that the IRS tax structure is progressive, and not all of your income is taxed at the same rate even if you fall in a higher tax bracket. 

Consider this example:

If Ruby made $30,000 in 2022 from the sale of digital assets, assuming a short-term transaction she falls in the 12% tax bracket. But the entire sum will not be taxed at 12%. The first $10,275 will be taxed at 10% and the remaining $19,725 will be taxed at 12%.

That’s how all taxes work in the US.

Form 1040: A Summary of Financial Gains and Losses

The Internal Revenue Service (IRS) has updated Form 1040, which is used by U.S. citizens to file their income tax returns, to specifically mention "Digital Assets" to ensure that all crypto and NFT transactions are properly accounted for when filing taxes.

The next step in filing your NFT taxes is summarising all your gains and losses and reporting the final tax calculated through form 8949 through form 1040. 

When you start filling out form 1040, you will face the following question on the first page of the form: 

“At any time during 2022, did you: (a) receive crypto as a reward, award, or compensation; or (b) sell, exchange, gift, or otherwise dispose of a digital asset?”

If you have been involved in any of the following activities during the year, you need to answer this question with a “Yes”.

  • Received digital assets as payment for property or services provided.
  • Received digital assets as a result of a reward or award.
  • Received new digital assets due to mining, staking, and similar activities.
  • Received digital assets as a result of a hard fork.
  • Disposed of digital assets in exchange for property or services.
  • Disposed of a digital asset in exchange or trade for another digital asset; Sold a digital asset.
  • Transferred digital assets for free (without receiving any consideration) as a bona fide gift.
  • Disposed of any other financial interest in a digital asset.

You can answer with a “No” if you’re:

  • Holding a digital asset in a wallet or account.
  • Transferring a digital asset from one wallet or account you own or control to another wallet or account that you own or control.
  • Purchasing digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal and Venmo. 

Section D of form 1040 deals with capital gains and losses. It is used for reporting any gains or losses incurred by the sale, exchange, or conversion of capital assets. It is important to note that involuntary conversions that lead to financial gains must be reported in this section.

Another relevant section on form 1040 is, Section A which deals with itemized deductions. Itemized deductions are expenses that you can add to your gross income to lower the taxable amount and save taxes. According to the IRS, itemized deductions include medical expenses, dental expenses, certain taxes, interest assessments, theft losses, and other expenses.

It’s important to note that itemized deductions only work when the sum total of the deductions is greater than the standard deductions offered by the government.

Form 1099-MISC: To Disclose Awards/Gains from Staking NFTs

Form 1099-MISC is used to disclose any miscellaneous income that’s above $600 received as rent, rewards and prizes, healthcare payments, crop insurance proceeds, and cash payments. 

Rewards from staking NFTs and cryptocurrencies are considered to be miscellaneous income by the IRS and must be reported under this form. NFTs collected as an in-game reward and disposed of via an in-game or secondary marketplace, are also liable to taxes and must be reported in this form.

Moreover, NFTs received via airdrops or as a gift are also considered to be a reward or a prize by the IRS and should be reported via this form.

How to minimize your NFT taxes(5 tips)?

In addition to itemized deductions, there are other strategies that can be employed to reduce the amount of taxes owed on NFT transactions. Here are 5 strategies you can use to reduce your tax obligations this year:

  1. HODL, Don’t Sell

Buying an NFT, or receiving it as a gift and holding them in your wallet doesn’t attract any tax liabilities, you might need to report the transaction to the IRS, but the gains are only taxable when you liquidate them or trade them for some other asset. As already mentioned above, short-term capital gains are taxed at a higher rate than long-term capital gains, so a strategically sound approach would be to hold your NFTs for at least 12 months before disposing of them.

  1. Buy NFTs with Fiat Currency

According to the revised tax guidelines, you’re not liable for any taxes if you “Purchase digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal and Venmo.” Moreover, If you purchase NFTs using fiat currency, you’re not obligated to report the transaction to the IRS. 

  1. Use NFTs for Tax Loss Harvesting

You can sell some of your NFTs at a loss and offset your taxable income against it. You can offset up to $3,000 worth of losses from NFTs sale against your capital gains in a year. This is called tax-loss harvesting and it’s a popular financial technique to reduce your taxable income from NFT sales.

  1. Take NFT-backed Loans

NFT-backed loans are one of the best ways to cash in on your NFT gains without getting taxed. Personal loans are not taxable because they are not considered a part of your income. You can use your NFTs as collateral to get access to liquidity pools on platforms like SparkSwap and NFTfi

  1. Use Software to File Taxes

Keeping track of all your digital asset transactions throughout the year and maintaining a ledger of instantaneous exchange rates is a (very)challenging task. If you fail to do so manually, you might end up misquoting the value of your transactions, resulting in an inaccurate tax report. Moreover, you can miss out on tax-saving strategies like HIFO accounting and tax-loss harvesting due to a lack of awareness. A smart step would be to leverage a potent crypto tax software like Kryptos. You can simply auto-sync all your crypto wallets and exchange portfolios with the software and it will generate a flawless tax report within minutes. And the best part is, it takes into account all local laws and tax-saving strategies to generate a financially-apt tax report.

FAQs

1. What is the NFT tax rate in the US?

The tax rate depends on the type of property being sold and the amount of profit the seller realizes from the sale.

For example, if an NFT is considered a collectible, such as a digital artwork, the sale of the NFT may be subject to a 28% tax rate on the profit. On the other hand, if the NFT is considered a capital asset, such as a security or investment, the tax rate will be based on the seller's marginal tax rate, which could be as low as 0% for those in the lowest tax bracket or as high as 37% for those in the highest tax bracket.

2. How does the IRS classify NFTs?

The Internal Revenue Service (IRS) in the United States generally treats non-fungible tokens (NFTs) as taxable property. However, the specific tax treatment of NFTs can vary depending on the nature of the NFT and the circumstances of the sale or exchange.

3. How are NFT gas fees taxed?

The IRS considers any gas fees paid while acquiring or selling an NFT as a capital expense. You can reduce your taxable profit by reporting the gas fees as an expense and writing it off against any gains you’ve made through an NFT sale. Adding gas fees to your cost basis can potentially decrease your tax liability when disposing of an NFT.

4. How are NFTs taxed?

NFTs are generally treated as intangible assets for tax purposes. When you sell an NFT, any profit you make is considered capital gains and is taxable. The rate at which you're taxed depends on various factors including your income and how long you've held the NFT. If you receive an NFT as payment, it's taxable as income based on its fair market value at the time of receipt.

5. How to report NFT on taxes?

To report NFT on your taxes, follow the following steps:

  • Maintain detailed records of all your NFT transactions. This includes the date of acquisition, the date of sale, and the amounts in your local currency.
  • Determine whether you've made a profit or incurred a loss. To do this, simply subtract your cost basis from the sale price. 
  • Fill out the correct tax form. For instance, U.S. taxpayers would use Form 8949 and Schedule D with their Form 1040.
  • If you receive NFTs as compensation for services or as a gift, you'd typically need to report this as income based on the fair market value of the NFT at the time of receipt.

6. How to pay taxes on NFTs?

Here are 5 steps to pay taxes on NFTs

  • Determine your applicable NFT tax rate
  • Make estimated payments throughout the year
  • Consider deductions to save taxes
  • Ensure you pay any tax owed by the deadline to avoid interest and penalties. 
  • Consult a tax professional or use a crypto tax software

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Decoding the DAC8: Its Implementation and Impact On Crypto

DAC8 framework is the eighth amendment of the original DAC that obliges crypto service providers worldwide to report crypto transactions of EU residents.

On 8 December 2022, The European Commission proposed a regulatory framework – DAC8 – that would oblige the crypto service providers globally to report transactions of users in the EU. 

The DAC-8 is the eighth amendment to the Directive on Administrative Cooperation, the primary framework for data exchanges between tax authorities which dates back to 2011 and was limited to only EU-based organizations. With this revised framework, the EU has taken a step towards improved crypto taxation complementing legislation like MiCA

Defining The Scope Of DAC8

DAC8 regulates crypto businesses providing their services to EU residents regardless of their location, meaning its scope is global. It covers cryptocurrency tax guidelines for both crypto-asset service providers regulated under MiCA and those that are not. 

While MiCA provides the conditions for access to crypto service providers in the EU market, it does not provide a basis for tax authorities to collect and exchange the information that they need for crypto tax purposes. 

This is where DAC8 will be applicable – containing provisions on exchange and tax reporting of crypto assets. DAC8 is aligned with the definitions laid out in MiCA, so crypto service providers do not need to worry about additional administrative burdens.

DAC8 is proposed to counter tax fraud and evasion through the following regulations:

  • Crypto-asset service providers have to report transactions of clients residing in the EU, irrespective of their size or location. This also includes cross-border transactions and in some cases, covers NFTs.
  • Financial institutions have to report on e-money and central bank digital currencies.
  • The DAC8 framework extends the scope of the automatic exchange of advance cross-border rulings for high net-worth individuals. 
  • It sets a minimum level of penalties for taxpayers with serious non-compliance. The actual fine depends on the seriousness of the violation and also on the EU member state.

What Does DAC8 Mean For Cryptocurrency Taxes?

The cryptocurrency market is still evolving and lacked any specific legislation by the state until now. But with the EU’s proposed frameworks including the DAC8 and MiCA, cryptocurrency is set to be adopted and used widely as a trusted form of investment.

This also means there will be a single set of laws for cryptocurrencies all across the EU. This will remove ambiguities around crypto taxation and help investors align their investments with crypto tax compliance. 

It will also ensure there are no tax evasions and tax fraudulence for crypto assets, bringing more transparency and an additional revenue of approximately €2.4 billion for EU member states. 

Digital Asset Taxation Compliance For High-net-worth Individuals

As per DAC8, the exchange of crypto-asset-related information is to be extended to cross-border advance rulings of high-net-worth individuals. In this case, an automatic exchange of information will take place with the EU member states. 

As per the EU Commission,

The persons concerned are those who hold a minimum of €1.000.000 in financial or investable wealth, or in assets under management. These exclude the individual's main private residence. Member States will exchange information on the advance cross-border rulings issued, amended or renewed between 1 January 2020 and 31 December 2025.

What Will The Future Hold?

In the future, all crypto service providers providing crypto transactional services to EU residents will have to share their transaction data with the EU authorities. This is irrespective of whether or not they are operating in the EU or fall under MiCA.

While this means crypto transactions may lose their “anonymity” factor, the good news is it will help boost the adoption of crypto in more mainstream utilities, for instance, e-commerce. 

It will also safeguard consumers using crypto for purchases in terms of refunds or any fraudulence and improve digital taxation compliance.

FAQs

1. What is DAC 8?

The DAC-8 is the eighth amendment to the Directive on Administrative Cooperation that has been proposed by the EU authorities to simplify crypto taxation. As per this framework, crypto service providers have to report the transactions of their EU clients irrespective of their business location.

2. What is the DAC regulation?

The DAC, or Directive on Administrative Cooperation is the main framework for data exchanges between tax authorities which dates back to 2011 and is limited to EU-based businesses.

3. What is the limit of DAC?

The DAC regulatory framework is limited to data exchanges between tax authorities for organizations located within the EU region. 

4. What does DAC stand for?

DAC is also called the Directive on Administration Cooperation – the main framework that exists since 2011 for data exchanges between tax authorities.

5. Why is DAC needed?

The DAC acts as a regulatory framework defining a uniform set of laws for taxation in the EU region. This prevents tax evasion, tax fraudulence, and ensures there is complete legal compliance across all member states.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Top 5 Wallets for Cryptocurrency in 2023

As a crypto investor or an NFT collector, you deserve the best crypto wallet - one that’s safe, reliable, and most importantly accessible when you need your assets.

Owning crypto assets is one thing, but keeping them safe is a different conversation. Initially, trust was a ubiquitous sentiment in the crypto sphere, but as hackers brushed away millions of dollars from popular exchanges, people realized they needed an alternative(a fact that was reaffirmed by the FTX collapse), and that’s when crypto wallets came into the picture. 

As a crypto investor or an NFT collector, you need a crypto wallet, one that’s safe, reliable, and most importantly accessible when you need your assets. Now, there are hundreds if not thousands of crypto wallets in the crypto sphere, hot wallets, cold wallets, custodian wallets, non-custodian wallets, and more to choose from. 

In this article, we discuss 5 best and most secure crypto wallets to keep your assets safe.

How Can You Choose the Most Trusted Crypto Wallet?

Choosing the most reliable crypto wallet depends on your specific needs, preferences, and the types of cryptocurrencies you intend to hold.

To help you out, here’s a list of the top 5 wallets for cryptocurrency to choose from.

Electrum

Electrum is one of the most trusted crypto wallets across the crypto community owing to its lightning-fast transaction speeds and support for a wide range of cryptocurrencies including Bitcoin, Ethereum, and Litecoin.

You can download this wallet on your phone or PC directly from the website.

Electrum uses a hierarchical deterministic (HD) wallet structure, which creates a unique address for each transaction you make. This helps to enhance privacy and security by preventing anyone from tracking your transactions. Electrum also enables you to create multiple wallets within the same software, allowing you to organize your digital assets easily. The platform also supports hardware wallets and offers custom transaction fees for people with advanced use cases.

Pros:
  • High transaction speeds
  • Wide range of cryptocurrencies
  • User friendly
  • Custom transaction fees
  • Supports hardware wallets 
Cons:
  • Does not offer as many features as some other software wallets
  • Not beginner friendly
  • Security vulnerabilities reported in the past year

ZenGo

If you’re looking for a reliable, secure, and easy-to-use non-custodial crypto wallet, ZenGo is the way to go. It is one of the first crypto wallets to solve the private key vulnerability i.e., frauds that occur due to the misplacement of the private key. It does that by removing the private key from the equation altogether by leveraging encrypted biometrics, making it one of the simplest wallets to use.

You can download the app on your android or IOS device by scanning the QR code in the image below.

You can make your account with ZenGo in less than 60 seconds and transact in 70+ crypto assets. With a guaranteed recovery model and built-in Web3 firewalls, it is one of the safest crypto wallets out there. ZenGo eliminates the possibility of phishing scams by using MPC cryptography instead of private keys and offers a safe environment for users to buy, sell, and trade crypto assets.

Pros:
  • Non-custodial
  • User-friendly 
  • Secure and keyless
  • Private
Cons:
  • Limited support for coins and tokens
  • No desktop version
  • No in-app trading

Read Also: Navigating Canadian Crypto Tax Brackets 2023: The Ultimate Guide

Trezor Model T 

Trezor Model T is one of the most technically advanced cold wallets in the digital wallet space. The cold wallet comes with a touch-screen display to navigate the device, and a dedicated processor to make those transactions lightning fast, not to mention the high levels of encryption on the device to secure your assets. It supports more than 1,440+ crypto assets. Trezor is a subsidiary of Satoshi labs and it was launched back in 2016. You can buy it directly from the website.

Although it’s a cold wallet, you can download the desktop app of the wallet for easier access. It is one of the few cold wallets to implement the Shamir Backup to protect your security seed and clubs it with a catchphrase recovery model, making it the best crypto wallet out there as far as cold wallets are concerned.

Pros:
  • Touchscreen display
  • Open-source firmware
  • Easy to use
  • Highly encrypted
Cons:
  • A bit expensive
  • Lack of customer support

Exodus

Every entry on this best crypto wallet list has a USP apart from all the basic functionalities. Exodus is on the list thanks to its visually attractive and super intuitive user interface, which makes using it, a delightful experience for the users. Initially launched as a desktop-only wallet, it’s now available for download across Android and iOS devices. However, the desktop version of the app is still the primary offering, being updated every 14 days to make it more secure. 

Exodus wallet also supports the Trezor hardware wallet for users who want to have easier access to their assets stored on cold wallets. Among the 260 odd crypto assets it supports, XRP, BCH, Ether, Litecoin, and Dogecoin are some of the popular holdings. It has also advanced features like customizable transaction fees for Bitcoin, Ethereum, and ERC-20 transactions. The transaction speeds are unbelievably fast because, unlike other soft wallets, it does not download entire blockchains to verify a certain transaction.

Pros:
  • Easy to use
  • Supports Apple Pay
  • Customizable transaction fees
  • Supports 260+ assets
Cons:
  • Less secure mobile version
  • No Native 2-FA
  • Multisig not supported

Blue Wallet

If you want a Bitcoin wallet for your smartphone, BlueWallet is the logical choice thanks to its feature-rich mobile app. The wallet supports cold wallets to easily manage their cold storage, and also allows users to create multiple spaces in case of forced disclosure. You can easily bump, cancel, or batch transactions by tweaking the dynamic transaction control feature on the app.

The app has a beginner-friendly interface that allows new users to easily navigate through the sea of functionalities offered within the app. Moreover, it supports complex features like customizable transaction fees and torr connectivity for enhanced security. Just like most of the wallets on this best crypto wallet list, it supports cold wallet integrations for efficient management of cold assets. It also supports integrations with lightning network, a layer 2 protocol that makes P2P transactions unbelievably fast and reliable.

Pros:
  • Beginner friendly
  • Supports lightning transactions
  • Customizable transaction fees
  • Multisig support
  • Create and manage proxy storage spaces
Cons:
  • No in-app tutorials for advanced features
  • Does not support 2-FA

Conclusion

From enhanced security to streamlined access to your cryptocurrency assets, the wallets on this list provide top-notch protection for your digital assets. While the ultimate choice will depend on individual needs, rest assured that any of the options listed here will keep your crypto safe. 

And regardless of which wallet you choose and what transactions you participate in, your tax obligations remain constant. However, navigating cryptocurrency taxes can be complicated, as different countries have varying rules and regulations, and tax authorities are continuously updating their guidelines. To ensure accurate reporting, you need to keep track of all your crypto activity across all exchanges and wallets and stay up to date on the latest tax laws and that’s challenging.

One way out of this mess is to leverage tax automation software like Kryptos. You just need to connect all your wallets and crypto exchange profiles on the platform, and it will auto-fetch all the necessary information and generate an accurate tax report based on your location. The platform even suggests tax-saving strategies like HIFO accounting and tax-loss harvesting, so that you don’t have to pay an extra dollar in taxes.

FAQs

1. What are the safest crypto wallets available?

If you’re looking for the most secure crypto wallets out there, hardware wallets are the best alternative for you. These are physical devices that are designed specifically to secure cryptocurrency. They store your private keys offline, making them immune to hacking attempts and other online threats. Trezor Model T is one of the best cold wallets out there with a simple interface and includes many security features to protect your assets.

2. Which is the best crypto wallet to use for you?

There’s no “one size fits all” answer to this question. It’s a choice that is subjective to your priorities and expectations. If you want the best bitcoin wallet for your smartphone, do with BlueWallet, if you need a more secure alternative, pick a cold wallet like Trezor, if you want something that works well on your desktop, Electrum is the right choice, and if you need something that fits all your needs with a little compromise on security, go with Exodus.

3. What are the best crypto wallet apps?

If you’re looking for the best and most trusted crypto wallet app that’s compatible with your smartphone and easy to navigate, BlueWallet is the way to go. However, it only supports bitcoin transactions and that can be a handicap for some users. Some of the popular crypto wallets for smartphones are Mycelium, Trust Wallet, BRD, ZenGo, and Exodus. There are many cryptocurrency wallets available for smartphones, and the best one for you will depend on your specific needs.

4. What are the best Bitcoin wallets?

There are multiple Bitcoin wallets available in the crypto sphere, however, we recommend going with Electrum if you’re a desktop user, and BlueWallet if you prefer using your smartphone.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Will Cryptocurrency Struggle Against Rising Interest Rates?

As crypto interest rates keep rising, will cryptocurrency be able to grow, or is it a bubble about to burst? Find out more about the potential fate of crypto here.

Cryptocurrency has continued to present an alternative route to fiat currency, but the question that has remained on the mind of many speculators is how it will hold up in the coming months as interest rates are set to get hiked. 

The Federal Reserve has said it would soon begin raising interest rates; in light of this, what is the fate of cryptocurrency? In light of the continued adoption and the use cases of cryptocurrencies, how will the increased interest rates affect cryptocurrency? Let’s investigate together: 

Low-interest rates and the birth of the bitcoin 

For Bitcoin, the lead cryptocurrency born in the times of low-interest rates; The world's first decentralized digital currency was first mined and traded in 2009, at a time when central banks were using unprecedented stimulus in an effort to keep borrowing costs minimal. Following the financial crisis, these institutions cut their benchmark rates close to zero and engaged in asset-purchase programs to meet this objective. 

Interest rates dropped sharply because of these efforts, and as a response, investors began reassessing available opportunities considering the low-yield environment. What did this mean for bitcoin? For one, investors found the digital currency more compelling since the opportunity cost of foregoing interest-rate payments was lower.

In this low-rate environment, one could argue that investors saw bitcoin as having similar incentives to other safe-haven assets, for example, bonds. As long as the interest payments provided by these safe assets were modest, investors had little reason to seek them out over bitcoin.

As the market stabilized and the need to tackle inflation led to increased interest rates, Bitcoin has risen in value. The general penetration of crypto has become more of a reality, with the price. 

More crypto and the Feds 

Today, Bitcoin is the leading cryptocurrency in the crypto market, however, due to the penetration level of cryptocurrencies which is on the high side, crypto is gaining increasing acceptance. As adoption goes up, the effects are beginning to show. 

In recent times, things are getting cold in crypto-land. Bitcoin is down dramatically from its November peak of close to $69,000, falling to a six-month low below $38,000 at some point in January.  At the moment, it has yet to break the $45,000 landmark. Trading volumes have slumped.

It is not just Bitcoin, other cryptocurrencies are also going in the downward direction as well. It is enough that some investors are concerned that the market is going into a "crypto winter" — a period when prices fall sharply and fail to recover for more than a year — as the Federal Reserve abruptly tightens monetary policy.

While other central banks may keep their monetary policy loose, the Fed is expected to tighten the interest rate in order to slow increasing inflation. The U.S. Consumer Price Index (CPI) rose 7% in December from 12 months earlier, the highest annual inflation rate since 1982. President Joe Biden has said it's “appropriate” for the central bank to “recalibrate” its monetary policy.  

To combat rising inflation rates, the Fed may raise interest rates sooner than previously planned, according to minutes from a Federal Reserve meeting. The prospect of a rise in borrowing rates impacted most markets, crypto or otherwise.

Why is the interest rate that important? 

Generally, higher interest rates increase the value of a country's currency. Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country's currency. 

This is why interest rates are important in the conversation of how the economy of a country is performing. The United States is no different. There is more to it though, one of the primary complicating factors is the relationship that exists between higher interest rates and inflation. If a country can achieve a successful balance of increased interest rates without an accompanying increase in inflation, its currency's value and exchange rate are more likely to rise.  

It is not that the interest rate is the golden key that unlocks the worth of a country’s currency. There are still factors including political and economic stability and the demand for a country's goods and services—that are often of greater importance. Factors such as a country's balance of trade between imports and exports can be a crucial factor in determining currency value. That is because greater demand for a country's products means greater demand for the country's currency as well. 

Favorable numbers, such as the gross domestic product (GDP) and balance of trade are also key figures that analysts and investors consider in assessing a given currency. 

Another important factor is a country's level of debt. High levels of debt, while manageable for shorter periods, eventually lead to higher inflation rates and may ultimately trigger an official devaluation of a country's currency. 

How will cryptocurrency fare? 

The last time the Fed raised interest rates was in 2018. This gives a little bit of insight into how the leading Crypto, Bitcoin, was able to fare in that period. This does not mean that the same process will occur again, however, it can present a window with which we can view how this will pan out. 

The leading cryptocurrencies might see some easing out as the news hit and the regulation goes into play. Already, the market is reacting to the news and the downward movement of cryptocurrencies have disturbed some investors. However, this seems only temporary at best. This is because despite the moves by the Fed, crypto adoption continues to rise, Paypal is exploring the idea of launching a token, several other companies are looking at the prospect too. One thing is clear, the increased interest rate will affect the cryptocurrency ecosystem but adoption will continue to march on and marshal strength.  

Stable coin to the rescue 

Higher interest rates on dollar-denominated assets will likely increase demand for the dollar and could result in a strengthening greenback in 2022. This could translate this year into higher demand for stablecoins, particularly dollar-pegged stablecoins.

“Stablecoins are a ‘medium’ between fiat currencies like the dollar and cryptocurrencies," said Scott Bauer, a former Goldman Sachs trader who's now CEO of Prosper Trading Academy. "Given that the Fed is likely raising interest rates multiple times this year, which should essentially provide tailwinds for the dollar, stablecoins which are tied to the dollar can also capture this upside.” He is not the only investor who is bullish on stablecoins. 

“If global inflationary concerns persist and [stablecoins] become more globally ubiquitous, there's no reason we wouldn't see a continued march upwards for USD stablecoin market cap due to inflows from other nations with struggling currencies,” Sean Farrell, head of digital asset strategy at FundStrat, said. “Ironically, this would result in a more robust crypto ecosystem and increased USD dominance.”

“The USD is still losing value against many other asset classes,” said Farrell. “Thus, while some traders might seek near-term shelter in stables, the cause would be macro uncertainty, not so much a preference for the dollar over bitcoin.”

Since Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins achieve their price stability via collateralization (backing) or through algorithmic mechanisms of buying and selling the reference asset or its derivatives. They stick to the pegged currency, in this case, the USD. 

While it is undeniable that the Fed action will affect the price of cryptocurrencies in the short term, the long term outlook of the market stands secure. The adoption of cryptocurrencies and the propagation of its use cases will continue to gain ground in the short as well as long term. 


FAQs
1. Will rising interest rates hurt Cryptocurrency?

Rising interest rates may have a negative impact on cryptocurrency prices, as they can make other investment options more attractive to investors. However, the effect of interest rates on crypto prices is complex and multifaceted and there may be potential profits that may outweigh these interest rates in the long run.

2. What happens to crypto if interest rates go up?
If interest rates rise, investors may be more likely to shift their money out of cryptocurrencies and into other investments that offer higher returns. This could result in a decrease in demand for crypto and a subsequent drop in prices.

3. How Do Interest Rates Affect Cryptocurrency?

High-interest rates can lead to a stronger economy, which may increase demand for crypto trading. But the rising interest rates can also make other investments more attractive, potentially leading to decreased demand for crypto and lower prices.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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What is Impermanent Loss in Cryptocurrency?

Wondering what is impermanent loss? Here's the ultimate guide to know everything about impermanent loss in crypto and its tax implications.

If you are in the DeFi space, chances are you have come across the term “impermanent loss”. This is an important concept for investors to understand related risks when participating in decentralized finance.

In this blog, we discuss what is impermanent loss in crypto and its tax implications in detail. We also explain a few solid tips so that you can avoid an impermanent loss as a crypto investor.

What is Impermanent Loss in Crypto?

Impermanent loss is the apparent loss that you incur when you provide liquidity to the DeFi liquidity pools you are participating in, and the profit you earn from staking the tokens in the pool is less than what you would have earned if you held them yourself.

It happens because the market price of the deposited tokens at the time of withdrawal changes compared to your deposit time. The more the price changes, the greater the impermanent loss incurred. 

This loss is called “impermanent” because you may recover the losses if you don’t withdraw your assets and their market price returns to your initial purchase price. 

So, Why do Liquidity Providers Give Liquidity Inspite of the Impermanent Loss Risk?

This is because the trading fees earned by the liquid providers each time they provide liquidity to the assets in the pool can make up for the impermanent losses. This can make the overall process profitable for the liquidity providers.

Also, you can prevent crypto impermanent loss if you just HODL your assets instead of withdrawing them during that specific time. 

However, this may vary depending on the pool you are participating in, its protocols, the type of assets pooled, and the market condition.

How to Calculate Impermanent Loss?

Impermanent loss is a percentage loss you would experience if the token’s price ratio changes than at the time of deposit. Note, this is without the trading fees of the pool.

Use this formula to calculate your impermanent loss:

Impermanent Loss = (2√price_ratio / 1+ price_ratio) - 1

Where,

price_ratio is the ratio between the market price of the token at the time of deposit and at the time of withdrawal.

If you want to dive deeper, here’s an excellent derivation for the above formula.

How does Crypto Impermanent Loss Work?

So, impermanent losses occur when the prices of your tokens in the pool change. But how does it exactly work? Let us understand this with the help of an example.

If you have two tokens, for instance, USDT and SOL worth $1 and $20 respectively at the time of funding a 50:50 USDT/SOL liquidity pool. You have to provide an equal ratio of both tokens to the pool (i.e. tokens worth the same in fiat currency)

Let’s say you invest $1000 in the pool. Since it’s 50:50, you provide $500 USDT ( 500 USDT tokens) and $500 SOL (25 Solana tokens).

Now, if the price of the SOL increases, for instance, $22, it opens up an opportunity for arbitrage traders since the price of SOL is lower in your pool than in external exchanges. The smart contracts of the AMM are set in such a way that the token ratio in the pool remains constant. 

So, when the price of SOL goes up, the amount of SOL tokens in your token pair will decrease and the USDT will increase to a point where the price of SOL and USDT becomes constant in your pair. 

In this case, it will come back to equilibrium when your token pair has 524.40 USDT and 23.84 SOL. If you now decide to provide liquidity, the value of the token pair will be $1048.81.

However, if you have held the token yourself – you would have 500 USDT and 25 SOL worth $1050. You incur an impermanent loss of 0.11%  from the trade even though you have realized capital gains from a tax perspective.

Best Strategy to Avoid Impermanent Loss

While you can’t avoid impermanent loss completely, here are four tips to help reduce its occurrence.

Opt for Low Volatility Pairs

The more the price of your crypto asset changes, the greater the chances of IL. One way to avoid it is to opt for stablecoins or less volatile pairs (e.g. USDT and DAI). Since the prices of these tokens do not fluctuate much, the risk of impermanent loss significantly reduces.

Use Multi-Crypto Asset Liquidity Pools

Liquidity pools don't always require you to invest in 50:50 crypto pairs. Some DeFi exchanges allow you to invest in two or more tokens at varying ratios. For instance, investing in a crypto pair with 80% stablecoins and 20% volatile tokens mitigates the risk of impermanent loss since a major portion of the token price will remain stable.

Earn as Passive Income

Holding your crypto assets and using them in the passive income approach helps you reduce risks of several risks that come with the market volatility including impermanent loss. This also helps you reduce your tax liabilities.

Use Impermanent Loss Protection (ILP) Program

Many DeFi protocols, for instance, ThorChain, have Impermanent Loss Protection (ILP) programs to ensure that the users either make a profit or at least meet the break even when they decide to liquify the pool.

This is done by filling in the loss using the decentralized protocol’s treasury. The losses are completely covered after a minimum period of holding time (i.e. 100 days) and partially covered before that point.

What are the Tax Implications of Impermanent Loss?

There are no defined rules for impermanent loss in most jurisdictions which can turn its taxes quickly complex. However, with all the information available, it can be interpreted that:

  • When you sell your tokens for the LP token pair, it is considered a trade and is taxable which needs to be reported whether or not you gain any capital gains. This is because you effectively “sell” your crypto tokens to “buy” LP token of a different nature and properties.
  • When you withdraw your funds from the pool, you are trading your LP tokens back into the pool. If you now make a profit from the initial buying price of your LP token, you will realize capital gains and pay capital gains tax on your trade. This is because even if you incur a loss than what you have earned if you have held those tokens yourself, you are actually making a profit on your trade

Since the tax implications on liquidity pool transactions are still in the grey area, it’s important to discuss all the details with your accountant to report taxes correctly. 

To simplify the process, Kryptos automatically detects any taxable events and calculates your realized capital gains from thousands of transactions. Simply add your wallet or exchanges to the platform – the app auto-syncs your transaction history and generates tax reports that comply with your country’s regulations.

FAQs

1. What is impermanent loss?

Impermanent loss is the apparent loss that you incur when you provide liquidity to the DeFi liquidity pools you are participating in, and the profit you earn from staking the tokens in the pool is less than what you would have earned if you held them yourself.

2. How does impermanent loss happen?

Impermanent loss is a percentage loss you would experience if the token’s price ratio changes than at the time of deposit. Note, this is without the trading fees of the pool.

Use this formula to calculate your impermanent loss:

Impermanent Loss = (2√price_ratio / 1+ price_ratio) - 1

3. What is impermanent loss protection?

Impermanent loss protection (ILP) is a program introduced by several exchanges and DeFi protocols which ensures the traders either make a profit or at least break even when they provide liquidity to the pool. If there’s any loss that occurs, the protocols fill it up from their treasury. 

4. What does it mean for taxes?

There are no defined tax laws for impermanent loss or liquidity pool transactions. However, with current rules in place, the entire process is seen as a trade and is subject to tax as follows:

  • When you dispose of your crypto tokens to buy LP token, it is considered taxable and you may incur a capital gain
  • When you dispose of your LP token (provide liquidity to the pool) and realize capital gains

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Declare Your Cryptocurrency to the CRA: Step-by-Step Guide for Canadians

This guide on declaring your cryptocurrency to the CRA for Canadians will help you stay compliant with crypto tax laws and avoid penalties.

The CRA has clearly defined that cryptocurrency is subject to taxes. How you will be taxed depends on whether you are seen as an individual or a business and your income bracket. But in all cases, you need to report your crypto transactions to the CRA.

If you are not sure about how to report your crypto earnings in your tax files, here’s everything about declaring cryptocurrency to the CRA and how to calculate your crypto taxes in 2023.

When Is Crypto Transaction Taxable In Canada?

Your crypto transactions are considered taxable if you generate any form of profit or income from them. For instance, if you sell your crypto asset for the Canadian dollar at a higher price than at the time of purchase, the profit you make is subject to tax.

As per CRA, cryptocurrency is subject to two types of taxes: capital gains tax and business income tax. Whether the CRA will treat you as a business or an individual is decided on a case-by-case basis. 

Capital Gains Tax

If you are an individual investing or trading crypto casually, your profits are considered capital gains by the CRA. In this case, you only have to pay taxes on 50% of your profits. 

Business Income Tax

You may be considered as a business for taxes if you are:

  • Investing for commercial reasons and in a commercially viable way
  • Undertaking investment activities in a businesslike manner (e.g. preparing a business plan or acquiring capital assets)
  • Promoting a product or service
  • Intending to make a profit

Some common business examples include crypto day trading, mining, and staking. If your crypto gains are considered a business income, you are liable to pay taxes on 100% of your profits. 

GST/HST

When you use crypto to purchase any goods or services, it is considered a barter transaction. In this case, both the buyer and the seller are subject to GST/HST on the fair market value of the crypto during the sale. 

If you're running a crypto-related business, ensure you register for GST/HST and report these transactions in your tax returns.

How To Calculate Your Crypto Gains And Losses?

Before you declare your cryptocurrency to the CRA, you need to calculate your gains or losses for each crypto transaction. Here’s how you can do it:

  • Determine your adjusted cost base (ACB): It is the average cost of all the units of a specific crypto asset you own, including any fees or commissions. You can calculate the ACB by dividing the total cost of the crypto asset by the number of units.
  • Calculate your capital gain or loss: Subtract the ACB from the fair market value of the crypto during the time of sale to calculate your capital gain or loss.
  • Convert to Canadian dollars: Ensure that all your calculations are done in Canadian dollars to get accurate results.

How To Report Your Crypto Transactions?

Once you have calculated your gains or losses, it’s time to report them on your tax return. You can declare your cryptocurrency for taxes using:

  • Schedule 3 Form to report your capital gains and losses
  • Form T2125 to report your crypto business income 
  • Form T1135 if you are a Canadian resident holding crypto outside the country (if the total cost of your foreign property exceeds $100,000)

What Happens If You Don’t Report?

Not reporting your crypto transactions to the CRA is illegal and can have serious consequences. The CRA can track all your crypto earnings so make sure to report them accurately to avoid penalties and overtaxes.

If you are not sure how to calculate your crypto taxes, you can also use crypto tax software like Kryptos to automatically track all your taxable transactions and calculate your taxes in a matter of minutes. 

How To Report NFTs For Taxes In Canada?

NFTs are considered crypto assets and must be reported for tax purposes in Canada. Just like any other crypto asset, you don’t have to pay taxes if you buy NFTs. 

Here’s when your NFTs are taxable:

  • Selling or trading NFTs that you have created is taxable. It is considered a business income and you will be taxed on 100% of your profits.
  • If you sell or trade an NFT that you have purchased from elsewhere, you are subject to taxes on 50% of your profits

Common Questions While Declaring Crypto To CRA

To help you report your cryptocurrency accurately, we have answered some of the most commonly asked questions.

How Does CRA Treat Losses?

The CRA allows Canadian taxpayers to claim their losses and use them to offset any crypto gains while reporting taxes. 

Is Gifting Cryptocurrency Taxable?

If the fair market value of the crypto is different at the time of gifting than when you first purchased it, the CRA considers it as disposal of your asset and is taxable.

The difference between the price at the time of disposal and at the time of purchase is the gain or loss that you incur. This needs to be reported to the CRA when filing taxes.

How CRA Treats Cryptocurrency Mining?

You don’t have to pay taxes when you receive crypto on mining but making any profit by disposing of your mined crypto is taxable. 

The income tax treatment for cryptocurrency mining varies depending on whether the mining activities are:

  • Personal activity of the miner (e.g. a hobby) which is 50% taxable
  • Business activity which is 100% taxable

To learn more about crypto trading taxation rules in Canada, refer to our blog here.

What If You Fail To Declare Cryptocurrency On Time?

You may be allowed to pay your taxes once the deadline is over but you will have to pay heavy penalties. You will end up overpaying taxes and the CRA may charge you interest on your unpaid taxes along with a penalty.

How Can Kryptos Help You Calculate And Save Crypto Taxes?

Declaring your cryptocurrency for taxes can be complex. You need to keep a track of all your transactions for different crypto assets. These include their purchase prices and fair market values at the time of disposal, any fees or transactions, tax rates, and much more.

Any error in the calculations can lead to overtaxes or missing out on opportunities to claim deductions. To help you out, Kryptos can automatically do all of this for you in just a few minutes. 

All you have to do is upload your wallet address and the platform auto-syncs all your transaction data and figures out your taxable transactions and possible deductions. Once done, you can also generate tax reports as defined by the CRA right from the app. To start calculating your crypto taxes, Sign Up Now for free.

FAQs:

1. How do I declare crypto in income tax?

To declare crypto in your income tax, you need to check if the transactions are treated as business income or capital gains. Use Schedule 3 Form to report your capital gains and losses and Form T2125 to report your crypto business income.

2. Does CRA monitor cryptocurrency?

The CRA is increasingly focused on monitoring cryptocurrency transactions to ensure tax compliance. They may use various methods to collect information about taxpayers' cryptocurrency holdings, including requesting data from exchanges, analyzing public blockchain data, or conducting audits.

3. Do Canadian crypto exchanges report to CRA?

Canadian crypto exchanges are subject to anti-money laundering (AML) and know-your-customer (KYC) regulations. While they may not automatically report your transactions to the CRA, they are required to maintain transaction records and could be compelled to share information with the CRA if requested.

4. Do I have to pay taxes on crypto in Canada?

Cryptocurrency transactions are subject to either income tax or capital gains tax, depending on the nature of the transaction.

5. Will Binance report to CRA?

Binance, being a non-Canadian exchange, does not have a direct reporting obligation to the CRA. However, the CRA can request information from foreign exchanges as part of international tax agreements or seek assistance from foreign tax authorities.

6. How do I avoid crypto taxes in Canada?

It is not advisable to attempt to avoid crypto taxes in Canada, as tax evasion is illegal and can lead to severe penalties, fines, and even imprisonment. Instead, focus on understanding your tax obligations and leverage tax deductions while filing taxes to the CRA.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Cash Out Your Cryptocurrency With Confidence: The Ultimate Guide For Canadians

Wondering which is the best way to cash out your Bitcoin and cryptos? Here are the top 4 ways to cash out your crypto in Canada while legally avoiding taxes

Canada is one of the rising hubs for the crypto industry with more than 1.2 million people owning crypto. But what happens when it's time to cash out the cryptocurrency? 

Whether you're looking to sell a portion of your bitcoins or cash out your crypto completely, it's crucial to know the right approach. With so many options available and new regulations being introduced every year, it can be challenging to know where to start.

In this guide, you'll find everything you need to know about cashing out crypto in Canada without paying more taxes in 2023 so that you can enjoy the value of your assets with confidence.

When Do You Have To Pay Taxes On Crypto In Canada?

Before we dive into how to cash out your cryptocurrency in Canada, it's important to understand when you have to pay taxes on your crypto. 

The Canada Revenue Agency (CRA) considers cryptocurrency as a commodity which is subject to tax. Any profits gained from cryptocurrency transactions are taxable as:

  • Business income which is 100% taxable
  • Capital gain which is 50% taxable

How you will be taxed by the CRA depends on whether you are conducting these transactions as a business or as an individual investor. 

Here are some of the following signs that can make you seen as a business:

  • Investing for commercial reasons and in a commercially viable way
  • Undertaking investment activities in a business-like manner (e.g. preparing a business plan or acquiring capital assets)
  • Promoting a product or service
  • Intending to make a profit

Whether you will be treated as a business or not is decided on a case-by-case basis by the CRA. If your crypto income falls under business income, you will have to pay taxes on 100% of your profits. If you are an individual investor, you will pay taxes on 50% of your capital gains.

You may be subject to crypto taxes if you:

  • Exchange your cryptocurrency for fiat currency
  • Trade your crypto token for another crypto
  • Purchase any products or services with cryptocurrency
  • Gift your crypto

What Are The Options For Cashing Out Cryptocurrency In Canada?

You are probably wondering about the best options to cash out your bitcoin or other cryptocurrencies. 

Here are the top 4 ways to consider for cashing out your crypto in Canada.

Sell Your Crypto On An Exchange

One of the easiest ways to cash out your cryptocurrency in Canada is by selling it on a cryptocurrency exchange. These are online platforms where you can trade your cryptocurrencies for fiat (e.g. Canadian dollars) or another crypto. 

Some popular exchanges operating in Canada include Coinbase, Bitbuy, and Gemini. However, crypto exchanges charge a certain fee for your transactions which may vary across platforms.  

Use Cryptocurrency Brokers

If you are not sure how to trade your crypto directly on an exchange, a convenient option is to use a cryptocurrency broker service to trade your crypto.

These brokers act as intermediaries between buyers and sellers and help you sell your cryptocurrency at a good price. All you have to do is enter the amount of crypto you want to trade and the currency you want to receive.

Several exchanges provide cryptocurrency broker services in Canada including NDAX and Netcoins. The charged fee is on the higher side than exchanges but you get more convenient services.

Cash Out Your Crypto Using Bitcoin ATMs

Bitcoin ATM is one of the easiest ways to cash out your cryptocurrency, simply by entering your wallet’s public address or scanning a QR code. You can also buy bitcoin using cash or digital transfers which will be delivered to your wallet. As of 2022, Canada has around 1,051 Bitcoin ATMs.

It may take anywhere from a few minutes to several hours to complete these transactions on the blockchain. Once your bitcoins are sold, you can receive physical cash or send the fiat amount to a digital wallet. 

The machines are costly to use and come with transaction limits. Consider this before you sell your bitcoin through these ATMs to get the best value for your assets. 

Trade In A Peer-To-Peer Marketplace

Peer-to-peer marketplaces is the best way to sell your cryptocurrency directly with traders from the same jurisdiction. This lets you trade in the same currency, avoiding any fluctuations in exchange rates. 

Some popular peer-to-peer marketplaces in Canada like LocalBitcoins or Paxful connect buyers and sellers directly for cryptocurrency trades. 

Since you are trading your crypto directly and not through any intermediary, you can set your own terms for the trades, for instance, the price at which you want to trade your crypto.

However, it is essential to be cautious when trading on these marketplaces and only deal with reputable buyers and sellers.

How To Cash Out Crypto Without Paying Taxes In Canada?

While it’s not legally possible to cash out crypto without paying taxes in Canada, there are several tricks to minimise your crypto tax bills. Let’s look at each of them in detail.

HODL Your Crypto

Canada has a capital gains tax, which means that you will be taxed on the gains you make when you dispose of your cryptocurrency. 

However, if you hold onto your cryptocurrency, you can enjoy the appreciating value of your assets without paying any taxes on them. 

You can realise the profits earned on your assets in a low-income year to avoid taxes completely for up to $14,398 of income.

Invest As A Trader

As per CRA, there are two types of taxes applicable on crypto: business income and capital gains. If the gains from your trades qualify as business income, you are taxed on 100% of your profits. Whereas, if you are an individual investor, you only pay taxes on 50% of your profits. 

Although there are no defined rules on how to be seen as an investor by the CRA, it’s a good idea to avoid repetitive investments and short-term gains.

Harvest Your Capital Losses

If you have incurred losses in your cryptocurrency investments, you can use them to offset your capital gains and reduce your tax liability. This is known as tax-loss harvesting.

This involves selling your losing investments to offset the gains you have made in a given financial year. You can use a crypto tax software like Kryptos to automatically find any tax-loss harvesting opportunities in your portfolio throughout the year and reduce your overall tax bill. 

Use your TFSA or RRSP

Another way to cash out your cryptocurrency without paying taxes is by using–

  • Tax-Free Savings Account (TFSA): You cannot hold cryptocurrency like BTC, ETH, or any other token directly in your TFSA. However, you can use crypto ETFs or other crypto funds (e.g. crypto mining stocks) listed on the Canadian stock exchange to keep your digital assets in a tax-free savings account. TSFA comes with a contribution limit of $6000 for the 2022 tax year and you must be above 18 years of age.
  • Registered Retirement Savings Plan (RRSP): You can add funds to the RRSP worth 18% of your previous year's income or $29,210 for the 2022 tax year – whichever is lower. You can then claim tax deductions for the amount you add to this account, reducing your overall tax bill.

Take A Loan With Your Crypto

Instead of directly disposing of your crypto that is subject to capital gains tax, you can take a loan against your crypto assets which is not considered a taxable event.

However, your assets may be liquefied if the crypto value drops significantly. Consider all market-related risks before opting for a crypto loan.

How Kryptos Can Help You Pay Less Taxes In Canada?

You can cash out your cryptocurrency in Canada using the above ways such as selling it on an exchange or using Bitcoin ATMs. However, it is essential to be aware of the tax implications of these transactions and to explore options to reduce your tax liability. 

Keeping track of all of this manually is possible, but you may miss out on taxes or overpay them. Kryptos lets you track all your crypto transactions automatically – identifying tax-saving opportunities, preventing calculation errors, and managing your crypto taxes automatically. 

You can also generate tax reports as per the guidelines defined by the CRA. All you need to do is add your wallet’s public address to the platform and let it automatically manage your crypto portfolio and applicable taxes. To learn more, Sign Up Now for free.

FAQs

1. What is the cheapest way to withdraw crypto from Canada?

The cheapest way to cash out your crypto in Canada is to use exchanges with minimal fees to sell your assets. Exchanges like Coinberry charge no funding and withdrawal fees while Bitbuy charges only 0.1% to 0.2% fees while selling your bitcoin and 1% withdrawal fees.

2. How do I cash out my crypto for cash?

There are primarily four ways to cash out your crypto in Canada: crypto exchange, crypto brokers, bitcoin ATMs, and peer-to-peer marketplaces. 

3. How do I avoid crypto tax in Canada?

While there’s no legal way to completely avoid taxes in Canada, you can use these tips to save taxes on your crypto transactions:

  • Hold your crypto and dispose of it in a low-income year
  • Be seen as an individual trader rather than a business to save 50% on your capital gains
  • Leverage tax-loss harvesting to offset your capital gains
  • Use TSFA or RRSP accounts for tax-free crypto savings
  • Take a loan with your crypto as the collateral

4. Is crypto income taxable in Canada?

Crypto is viewed as a commodity by the CRA and any income from the disposal of crypto is subject to two types of taxes: capital gains tax and business income.

5. How do I cash out a large amount of crypto in Canada?

The most convenient way to cash out your crypto is to use crypto exchanges or brokers. However, they charge you a specific fee which is generally a percentage of your transaction amount. 

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Beskattning av kryptovalutor i Sverige

Hur kryptovalutor beskattas i Sverige.

Högsta förvaltningsdomstolen anser i likhet med Skatterättsnämnden att bitcoin inte kan likställas med en delägarrätt eller utländsk valuta. Avyttring av bitcoin ska därför beskattas enligt bestämmelserna om andra tillgångar i 52 kap. inkomstskattelagen, IL. Bitcoin kan inte vara en s.k. personlig tillgång, vilket innebär att omkostnadsbeloppet ska beräknas enligt den s.k. genomsnittsmetoden och att 70 procent av en förlust får dras av. Läs mer på regler & ställningstagande

När ska jag deklarera mina kryptovalutor?

  • sålt kryptovaluta
  • bytt en kryptovaluta mot en eller flera andra typer av kryptovalutor
  • bytt en kryptovaluta mot en FIAT-valuta, ex USD, Kronor, Euro
  • betalat med kryptovaluta vid köp av en vara (till exempel ett par skor) eller en tjänst (till exempel en taxiresa)
  • lånat ut kryptovaluta
  • använt kryptovaluta som spelinsats.
Du redovisar detta på bilaga K4 under avsnitt D, som du lämnar in tillsammans med din inkomstdeklaration.

Så beskattas du
Om du till exempel har köpt och sålt kryptovaluta räknar du ut din vinst eller förlust så här:

Det du fått betalt (försäljningspris)
- det du köpte för (omkostnadsbelopp)
= din vinst eller förlust.

Du som har gjort en vinst beskattas för hela vinsten. Du betalar 30 procent i skatt på din vinst.
Har du gjort en förlust är den avdragsgill till 70 procent.

Omkostnadsbelopp

Ditt omkostnadsbelopp är normalt det belopp som du har köpt din kryptovaluta för. Men beroende på hur du skaffade din kryptovaluta räknas omkostnadsbeloppet ut på olika sätt.

Du behöver kunna styrka omkostnadsbeloppet med till exempel kvitton eller originalkontoutdrag från växlingsföretag. Om det har förekommit plånboksadresser ska transaktionerna i blockkedjan stämma överens med redovisningen av köp, mining och försäljning av bitcoinen.

Om du har skaffat eller fått kryptovaluta vid flera olika tillfällen ska du beräkna ett genomsnittligt omkostnadsbelopp. Schablonmetoden, där man använder 20 procent av försäljningspriset som omkostnadsbelopp, får inte användas när du redovisar kryptovaluta.

Exempel – köp och försäljning av kryptovaluta

Anela har under 2017 köpt bitcoin vid två tillfällen. Den 12 oktober köpte hon 0,5 bitcoin för 20 000 kronor och den 12 november köpte hon ytterligare 0,2 bitcoin för 10 000 kronor. Den 16 oktober 2020 sålde hon 0,4 bitcoin för 40 000 kronor. Anela ska redovisa försäljningen på bilaga K4 under avsnitt D.

Hon gör en genomsnittsberäkning på hjälpblanketten SKV2198.
Bildsom visar hur hjälpblanketten SKV2198 ser ut
Anela kan antingen redovisa sin försäljning i e-tjänsten Inkomstdeklaration 1 eller på pappersblankett K4 under avsnitt D.

Redovisning på blankett K4 avsnitt D

Under Antal/Belopp i utländsk valuta fyller Anela i 0,4. Som beteckning anger hon Bitcoin. Hon fyller också i försäljningspris (40 000 kronor), omkostnadsbelopp (17 143 kronor) och vinst (22 857 kronor). Längst ner på blanketten summerar hon de totala beloppen.
bild som visar hur blankett K4 ser ut
Redovisning i e-tjänsten Inkomstdeklaration 1

I e-tjänsten Inkomstdeklaration 1 letar Anela upp K4 – Övriga värdepapper, andra tillgångar (kapitalplaceringar t.ex. råvaror, kryptovalutor) m.m.

Som beteckning anger Anela Bitcoin. Hon fyller också i försäljningspris (40 000 kronor) och omkostnadsbelopp (17 143 kronor). E-tjänsten räknar då ut hennes vinst automatiskt.

Det finns ingen möjlighet att fylla i decimaler i e-tjänsten. Anela avrundar därför till närmaste heltal och sätter 0 i rutan för Antal. Anela skriver sedan under Övriga upplysningar att hon sålt 0,4 stycken bitcoin.
Bild som visar hur e-tjänsten ser ut

Exempel – köp, försäljning, köp av varor

Eva bedriver inte någon näringsverksamhet och har som privatperson genomfört ett antal olika köp och försäljningar av bitcoin enligt följande:

Eva köper 10 bitcoin för 10 000 kr och köper sedan ytterligare 10 bitcoin för 50 000 kronor. Sammanlagt har hon köpt 20 bitcoin för 60 000 kr och varje bitcoin har därmed ett genomsnittligt omkostnadsbelopp med 3 000 kr (60 000 kronor ÷20).

Eva säljer 15 bitcoin för 60 000 kronor och omkostnadsbeloppet är 45 000 (15 x 3 000 kronor). Vinsten blir därmed 15 000 kronor (60 000 – 45 000). Kvarvarande omkostnadsbelopp för 5 bitcoin är 15 000 kronor.

Eva köper ytterligare 5 bitcoin för 25 000 kronor. Summa omkostnadsbelopp är nu 40 000 kronor för 10 bitcoin, vilket medför ett nytt genomsnittligt omkostnadsbelopp med 4 000 kronor för varje bitcoin.

Eva köper varor på internet för 2 000 kronor och betalar med 0,345 bitcoin. Eva avyttrar (säljer) därmed 0,345 bitcoin för 2 000 kronor. Omkostnadsbeloppet är 1 380 kronor (0,345 x 4 000 kronor) och kapitalvinsten är därmed 620 kronor (2 000 – 1 380).

Eva säljer 5 bitcoin för 15 000 kronor. Genomsnittligt omkostnadsbelopp är fortfarande 4 000 kronor per bitcoin. Det leder till en kapitalförlust med 5 000 kronor (15 000 – 20 000).

Eva redovisar en total kapitalvinst på bilaga K4, avsnitt D med 15 620 kronor (15 000 kronor + 620 kronor) och en kapitalförlust med 5 000 kronor. Kapitalvinsten tas upp till 100 procent och kapitalförlusten är avdragsgill till 70 procent. Det sker ingen kvittning på bilaga K4, avsnitt D. Skatteverket reducerar automatiskt kapitalförlusten till 3 500 kronor (5 000 x 70 procent) före den dras av mot kapitalvinsten vid beräkning av överskott av kapital.

Exempel – växling mellan olika kryptovalutor

Samira bedriver inte någon näringsverksamhet och har som privatperson investerat i bitcoin. Hon har sedan växlat sina bitcoin till litecoin. Växling från en kryptovaluta till en annan medför att hon ska göra en kapitalvinstberäkning. Samira har tidigare köpt 10 bitcoin för 100 000 kronor och hon växlar in dessa mot litecoin. Hennes omkostnadsbelopp för de bitcoin som hon växlade in blir därmed 100 000 kronor. Försäljningspriset blir värdet i svenska kronor av de litecoin som Samira fick vid växlingstillfället. Detta ska Samira redovisa i inkomstslaget kapital på bilaga K4, avsnitt D.

Exempel – köp och försäljning av bitcoin (förenklad redovisning)

Eddie bedriver inte någon näringsverksamhet och har som privatperson handlat med bitcoin.

Eddie har köpt 2 bitcoin för 128 000 kronor. Hans genomsnittliga omkostnadsbelopp för varje bitcoin blir 64 000 kronor (128 000 kronor ÷ 2). Eddie säljer sedan under 2020 0,01 bitcoin vid tvåhundra olika tillfällen. Hans omkostnadsbelopp vid varje försäljning blir 640 kronor (64 000 kronor x 0,01). Vissa av försäljningarna har lett till vinster och vissa till förluster.

Eddie behöver inte redovisa varje försäljning för sig. Han summerar sitt totala försäljningspris och sitt totala omkostnadsbelopp för de vinstaffärer han har gjort. Försäljningspriset och omkostnadsbeloppet fyller han sedan i på bilaga K4 under avsnitt D. Mellanskillnaden redovisas som vinst. Han fyller även i totalt antal bitcoin han sålt med vinst avrundat till närmaste heltal.
Han summerar sedan sitt totala försäljningspris och sitt totala omkostnadsbelopp för de förlustaffärer han har gjort. Försäljningspriset och omkostnadsbeloppet fyller han sedan i på bilaga K4 under avsnitt D. Mellanskillnaden redovisas som förlust. Han fyller även i totalt antal bitcoin han sålt med förlust avrundat till närmaste heltal.

Vinsten tas upp till 100 procent och förlusten är avdragsgill till 70 procent. Det sker ingen kvittning på bilaga K4, avsnitt D. Skatteverket reducerar automatiskt förlusten till 70 procent.
Bild på e-tjänsten.

Read in English Also: Taxation of Cryptocurrencies in Sweden

Skattepliktiga händelser

Här har vi summerat upp olika skattepliktiga händelser som du är skyldig att betala skatt på. Vi på Kryptos ansvarar inte för att Skatteverkets regler angående de skattepliktiga händelserna ej stämmer överens med vår information. Detta är inte skatterådgivning, vi ber er därför kontakta Skatteverket för mer information vid frågor eller funderingar.

Försäljning av krypto

Försäljning av krypto är en skattepliktigt händelse och ska deklareras som kapitalvinst.

Handla krypto med krypto

Att handla krypto med krypto eller krypto till stablecoins (TUSD → BTC eller  BTC → TUSD) är en skattepliktig händelse och beskattas som kapitalvinst.

Om du har investerat i bitcoin sedan växlat dina bitcoin till ethereum. Växling från en kryptovaluta till en annan medför att du ska göra en kapitalvinstberäkning. Samira har tidigare köpt 10 bitcoin för 100 000 kronor och hon växlar in dessa mot ethereum. Hennes omkostnadsbelopp för de bitcoin som hon växlade in blir därmed 100 000 kronor. Försäljningspriset blir värdet i svenska kronor av de ethereum som Samira fick vid växlingstillfället.

Initialt myntbjudande (ICO)

ICOs beskattas som försäljning. Vid lyckad försäljning är omkostnadsbeloppet marknadsvärdet på kryptovalutan som du använde för att delta.

Köp av varor och tjänster med krypto

Köp av varor och tjänster beskattas som försäljning och ska deklareras som kapitalvinst.

Marginalhandel

Den realiserade vinsten eller förlusten beskattas som kapitalvinst när positionen stängs.

Om du realiserade en vinst tillämpas vinstbasisens kostnad efter att du har betalat kapitalvinstskatten. Vid en förlust fungerar det på samma sätt som om du sålde ditt krypto för 0 SEK, förlusten är lika med ditt kryptos genomsnittliga kostnadsbas.


Köp av krypto

Köp av krypto beskattas ej, dock är det viktigt att hålla koll på kryptovalutans pris vid tidpunkten av ditt köp för att senare kunna räkna fram rätt omkostnadsbelopp vid försäljning.

Överför krypto mellan dina plånböcker

Överföring mellan olika plånböcker/wallets behöver inte beskattas. För din egen skull är det bra att bokföra dina transaktioner. Det kommer att underlätta när du ska räkna ut omkostnadsbeloppet.

Förlorad eller stulen krypto

Förlorad, hackad eller stulen krypto beskattas ej. Har du gjort vinst på ditt krypto beskattas vinsten oavsett. Du kan alltså inte kompensera förlorad eller stulen krypto mot dina vinster. Du tar bort den relevanta kostnadsbasen från dina beräkningar.

Ge / få krypto som gåva

Att ge bort eller att få krypto som gåva beskattas ej. Detta gäller även för donationer, dock ska det beskattas vid försäljning.

Inkomst från andra aktiviteter (t.ex. frilans, lön)

Inkomst från andra aktiviteter som arbete eller en tjänst ska deklareras som inkomstskatt. Kostnadsunderlaget för det krypto du fått är samma värde som du uppgav som inkomst.


Belöning, Airdrops & Forks

Airdrops och Hardforks räknas som gåva och beskattas ej. Endast vid försäljning ska detta beskattas och omkostnadsbeloppet ska då vara noll.

Mining

Om du som privatperson har inkomster från mining av bitcoin och andra kryptovalutor ska du betala skatt på inkomsterna. De beskattas normalt som inkomst av tjänst (hobby) men kan undantagsvis beskattas som inkomst av näringsverksamhet.

Utlån av krypto

Utlåning av en kryptovaluta beskattas som försäljning och ska deklareras som kapitalvinst.

Ränta

Räntan klassas som en inkomst och ska därför beskattas som förtjänst. Det är lite otydligt hur det ska deklareras, i ett samtal med skatteverket kom vi fram till att inkomsten från räntan kan deklareras i K4-blanketten avsnitt D (se bild) och inte i sektionen 7.2 Ränteinkomster, utdelningar, vinst från bilaga K4 avsnitt C (marknadsnoterade obligationer, valuta m.m.).

Lån mot fiat

Att låna FIAT-valuta, ex USD, Kronor, Euro i utbyte mot krypto beskattas som försäljning och ska deklareras som kapitalvinst.

Avslutat lån

Att avsluta sitt lån eller ta tillbaka sitt krypto räknas inte som en skattepliktig händelse och behöver inte deklareras.

Read also: A Comprehensive Guide Swedish Crypto Taxes 2023

Staking & staking rewards

Staking av en kryptovaluta beskattas som försäljning och ska deklareras som kapitalvinst.

Staking rewards

Staking rewards klassas som en inkomst och ska därför beskattas som förtjänst, precis som räntan för utlånad krypto.

Avslutad staking

Att avsluta sin staking eller ta tillbaka sitt krypto räknas inte som en skattepliktig händelse och behöver inte deklareras.

Non-fungible token (NFT)

Köp av NFT

Köp av NFT beskattas ej, dock är det viktigt att hålla koll på priset vid tidpunkten av ditt köp för att senare kunna räkna fram rätt omkostnadsbelopp vid försäljning.

Köp av NFT för krypto

Att handla NFT med krypto (ETH → NFT) beskattas som försäljning och ska deklareras som kapitalvinst.

Försäljning av NFT

Försäljning av NFT är en skattepliktigt händelse och ska deklareras som kapitalvinst.

Försäljning av NFT för krypto

Försäljning av NFT för krypto är en skattepliktigt händelse och ska deklareras som kapitalvinst.

Försäljning av NFT för en annan NFT

Försäljning av NFT för en annan NFT är en skattepliktigt händelse och ska deklareras som kapitalvinst. Det viktigt att hålla koll på priset vid tidpunkten av ditt köp av NFT för att senare kunna räkna fram rätt omkostnadsbelopp vid försäljning.

Kryptovaluta i näringsverksamhet

Om du har fått kryptovaluta som betalning i din näringsverksamhet ska den efterföljande värdeförändringen normalt beskattas som inkomst av kapital. Detta gäller dock inte i verksamheter där kryptovalutan är en lagertillgång, till exempel om du driver utåtriktad växlingsverksamhet. I sådana fall ska du redovisa inkomsterna som inkomst av näringsverksamhet.

Exempel – näringsverksamhet

Olof säljer varor i sin webbshop på internet. Han tar betalt i bitcoin. Olof bokför varje försäljning för sig i svenska kronor utifrån värdet den dagen han får betalt i bitcoin. Eftersom bitcoin inte utgör lager i denna typ av näringsverksamhet anses Olof göra ett eget uttag av bitcoinen i samma ögonblick som han får dem.

I januari har han bokfört försäljningsinkomster och moms med sammanlagt 34 500 kronor och han har under denna period fått sammanlagt 0,4 bitcoin som han då tar ut och sedan säljer för 36 000 kronor. Detta ska redovisas i inkomstslaget kapital på bilaga K4, avsnitt D. Försäljningspriset är 36 000 kronor och minskas med omkostnadsbeloppet som motsvarar redovisat belopp i näringsverksamheten inklusive moms, det vill säga 34 500 kronor. Kapitalvinsten blir 1 500 kronor.

Ansvarsfriskrivning

Vi på kryptos.io strävar efter att informationen ska vara korrekt i alla avseenden. Vi kan dock inte garantera detta, och kan därför heller inte ta något ansvar för eventuella förluster som orsakats av felaktig information på denna webbtjänst.
Vi är dock tacksamma för alla påpekanden om felaktigheter. Om du hittat något som verkar fel får du gärna skicka ett meddelande till oss på contact@kryptos.io.

Källa Skatteverket, Divly

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Is It Possible To Avoid Crypto Tax In Uk? - Let's Find Out.

The subject of taxes on crypto is one that’s barely touched upon in the digital verse. Because the focus is primarily on the gains from these assets, not on the liabilities they attract. 

However, the conversations need to shift as major economies around the world tighten their grip on investors. With strict laws against tax evasion and tax fraud in place, not paying your crypto taxes can attract some unwanted legal complications.

But what if we told you that there are ways to avoid tax legally on crypto transactions, and some of them are even incentivized by the HMRC?

Our conversation today focuses on tax-saving strategies that can help you avoid taxes legally and utilize all the tax loopholes to minimize your taxes.

So let’s hop in…

Understanding crypto taxes in the UK

Although there are no specific crypto tax laws in the UK, the HMRC has issued guidelines provisioning the taxation of crypto. According to HMRC, crypto assets are subject to capital gains tax and income tax based on the nature of the transactions involving them. If a crypto asset is disposed of and that results in a capital gain, then the event attracts a capital gains tax.

The following transactions are counted as a disposal of a crypto asset:

  • Selling crypto for fiat
  • Exchanging one asset for another 
  • Trading in a crypto asset for another form of asset
  • Gifting crypto, not involving your civil partner or spouse

And if you’ve received crypto as compensation for the sale of a product or service, or as recurring income from transactions involving crypto assets(staking, lending, yield farming), the event attracts income tax and is taxed at the rate of 10% or 20% depending upon your income levels.

How to avoid crypto taxes(legally) in the UK?

If you’re caught evading taxes in the UK, you could end up with 7 years in prison, not to mention the fines, penalties, and legal expenses. So if you’re considering not paying your crypto taxes this tax season, we advise you against it.

Moreover, there are strategies that you can employ to legally cut down your taxable income and pay lesser taxes. Let’s discuss them one at a time.

Use Tax Loss Harvesting

This is a popular tax loophole in UK. Tax loss harvesting refers to a strategy used by investors to offset their capital gains from the disposal of a capital asset against the losses incurred from the sale of another. Investors often intentionally close positions at a loss to offset their gains against it and reduce their taxable income.

It’s important to note that any loss incurred from wash sales is not considered to be a true loss by the HMRC and therefore cannot be used in tax loss harvesting. A wash sale is a term used to describe the event of selling and repurchasing an asset to create an imaginary loss in the process.

Utilize your tax-free allowances

Every Uk resident is offered a tax-free allowance, an amount that you need to surpass for your income to be taxable. This allowance is set to £12,300 per individual in the UK for crypto transactions till March 2023.  However, this is scheduled to decrease to £6,000 starting in April 2023 and to £3,000 starting in April 2024. If the sum of all your realized gains is greater than the allowance, then the amount over the allowance limit will be subject to capital gains tax. 

Let’s understand this through an example:

If Oliver bought 2 BTC at £5,000 and sold them at £15,000 at the end of 2022, then the total realized profit comes out to be £20,000, which is £7,700 above the allowance limit, so the excess amount i.e. will be taxable. Or Oliver can sell another token at a loss of £7.700 or more and bring his taxable income down to zero.

Gift crypto to your spouse

As mentioned earlier, the tax-free allowance of £12,300 is offered to every UK citizen and that goes for your spouse or civil partners as well. You can utilize your spouse’s unused allowance limit by gifting them some of your crypto assets. According to HMRC, crypto assets can be transferred between partners and their combined tax-free allowance can be used to offset the collective gains. The only catch here is that the partners should share the same household. This is another popular tax loophole in the UK.

Another way you can benefit from gifting your assets to your significant other is when they fall in a lower tax bracket than you. In that case, your spouse can dispose of your assets for you and attract a lower tax liability on the disposal than you.

One important thing to notice is that the tax-free allowance limit for crypto transactions will be progressively reduced by 50% starting April 2023.

Invest in your pension fund with crypto

Any income from transactions involving crypto assets attracts income tax from the HMRC and therefore can be invested in the SIPP or ISA to be availed after retirement. Despite being a possibility in the UK, it’s a complicated process and you need to explore this option in detail with your employer and financial advisor to better understand the benefits, and risks involved with the process. This is one of the safest ways to avoid tax legally in the UK.

Use Investment schemes to cut down on your taxes

If you’re sitting on a significant amount of unrealized gains in crypto assets and don’t want to pay capital gains tax on the income by liquidating your positions. You can invest in small businesses through government schemes like the Social Investment Tax Relief, Seed Enterprise Investment Fund, and Enterprise Investment Fund. It is one of the best ways to avoid paying taxes legally on your crypto assets

You can also consider investing in the venture capital trust offered by the government, where citizens with surplus funds can pool their assets and offer capital to emerging businesses in the country. 

Given below are the tax benefits linked to these schemes:

Scheme 

Tax Benefits

Seed Enterprise Investment Fund

50% income tax relief

Enterprise Investment Fund

30% income tax relief 

Social Investment Tax Relief

100% income tax relief 

Donate crypto to charity

Your crypto donations are tax-deductible according to the HMRC and that’s good news because if you have amassed monumental gains in crypto assets and don’t want to give away a huge chunk of that gain as taxes, you can donate your crypto to a charity of your choice and use that donation as a deductible to reduce your table income. 

It’s important to note that the charity should not be owned by someone related to you and the donation should not benefit you directly or indirectly. In case a relationship between you and the charity can be established, the donation cannot be counted as tax-deductible.

Use crypto tax software to track all your unrealized losses

Tracking all your crypto investments and the respective transactions that result in a capital gain can be a tedious task and often intimidating for individuals. And if you miss reporting some of your losses in your tax report, then you end up with an inaccurate tax report that overstates your liabilities. 

One smart solution to this problem is to use crypto tax software like Kryptos - UK’s Top Cryptocurrency Tax Software, which can auto-fetch all your transactions across all your profiles and accurately report all your losses to create an accurate tax report.

FAQs

1. Is it possible to live in the UK?

It is possible to live in the UK without paying taxes, but it depends on your circumstances. The UK has a progressive tax system, which means that the more you earn, the more tax you pay. If you earn below a certain amount, you may not have to pay any income tax at all. Additionally, there are certain tax reliefs and exemptions that you may qualify for, such as a tax-free personal allowance.

However, if you are a UK resident for tax purposes and have income from sources such as employment, rental income, or investments, you are required by law to disclose your income and pay tax on it, regardless of the amount. Furthermore, most people will still have to pay other taxes such as VAT when they buy goods and services or council tax when they live in a house or flat.

2. Is there any way to avoid paying taxes in the UK?

It is illegal to not pay taxes that you owe in the UK. Avoiding taxes, also known as tax evasion, is a criminal offence and can result in fines, penalties, and even criminal charges.

However, there are legal ways to reduce the amount of tax you owe, such as taking advantage of tax reliefs, exemptions, and credits available, planning your tax affairs efficiently, keeping accurate records, and filing your tax returns on time.

3. How much tax do I pay on my crypto in the UK?

The amount of tax you pay on your crypto in the UK depends on your circumstances and the type of income or gains you have made from your crypto transactions.

In general, if you make a profit from buying and selling crypto, it will be subject to Capital Gains Tax (CGT). The rate of CGT in the UK is currently 20% for most taxpayers, but it can be as high as 28% for higher-rate taxpayers.

If you are using crypto as a means of payment for goods or services, it will be subject to Value Added Tax (VAT) which is currently 20%.

Also, if you receive crypto as a form of income, such as mining rewards or staking rewards, it will be subject to Income Tax. The income tax rates in the UK are currently 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers.

4. What happens if I don’t pay my taxes in the UK?

If you don't pay your taxes in the UK, you could face penalties and fines, and in some cases, even criminal charges. The specific consequences will depend on the severity of the non-compliance and whether it was done deliberately or by mistake.

The HM Revenue and Customs (HMRC) has the power to take legal action against individuals and businesses who are found to have deliberately evaded or failed to pay taxes. This can include fines, penalties, and even imprisonment for the most serious cases. 

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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7 NFT Tax Loopholes That You Should Know In 2023

Wondering how to save taxes on your NFTs? Here’s everything you need to know about NFT taxes and 7 NFT tax loopholes to legally avoid crypto taxes in 2023.

The past few years have marked an exponential growth of NFTs in the crypto world, providing exciting opportunities for artists, collectors, and investors. However, with this newfound success comes a new set of tax implications that can be confusing and overwhelming for many NFT enthusiasts. 

The taxation of NFTs is still a developing area, and there exist many NFT loopholes to reduce your tax liability legally. 

In this blog, we'll explore the various tax implications of NFTs and provide 7 different ways to reduce your NFT taxes.

How Do NFT Taxes Work?

Similar to any other crypto assets, NFTs are subject to both income tax and capital gains tax. A tax rate of up to 37% is applicable for any income or short-term capital gain made from NFTs. Any long-term capital gains from NFT disposal are subject to a 0-20% tax rate.

The final taxes depend on various factors including your income bracket, asset’s holding period, and filing status. 

The NFT taxable transactions include:

  • Buying NFT with cryptocurrency
  • Selling NFT for cryptocurrency or fiat
  • Exchanging NFT for another NFT

There are two types of taxes that may apply to your NFTs:

  • Capital Gains Tax: If you make any profit from the disposal of your NFTs for fiat or other crypto assets, you incur a capital gains tax. If you dispose of your NFT in less than 12 months, you are subject to short-term capital gains tax. Any disposal made beyond this time period attracts long-term capital gains tax.
  • Income Tax: Any form of income made from your NFTs is subject to ordinary income tax. For instance, if you are selling an NFT collection you created for fiat, the income is subject to this tax category.

Are NFTs Taxed As Collectibles By The IRS?

IRS has no specific guidelines on NFTs as of yet. However, it’s possible that specific segments of NFTs, such as trading card NFTs and art NFTs, can be treated as collectibles for tax purposes. 

Transactions on these NFTs can be subject to a maximum 28% tax rate irrespective of the holding period of the asset. 

7 NFT Tax Loopholes To Reduce Crypto Tax Bill

As NFTs gained popularity, tax authorities started to pay attention to their potential tax implications. However, specific strategies allow you to minimize the tax liability on these transactions. 

Let's look at the top 7 NFT tax loopholes that you can leverage to significantly reduce your crypto tax bill.

Adjust Your Cost Basis

Cost basis is the purchasing amount of your asset, and it is used to determine the capital gain or loss that you made from its disposal. When an NFT is sold, the capital gain is calculated as the difference between the disposal price and the cost basis.

One way you can reduce your tax burden is by adjusting the cost basis of your NFTs. Include any expenses incurred in acquiring your NFT, such as transfer fees, commission, and other related costs. 

By increasing the cost basis, the taxable capital gain from the NFT’s disposal will be reduced, giving you a lower tax bill.

For example, if you buy an NFT for $1,000 and incur $100 in transfer fees, the cost basis of the NFT would be $1,000 + $100 = $1100. If the NFT is later sold for $1,500, the profit would be $400 ($1,500 - $1,100), thus saving you $100 in capital gains.

Take Advantage Of  A Low-income Year

The capital gains tax that you need to pay depends on your overall income for the given financial year. 

For instance, if you realize a capital gain from the NFT in a year when your taxable income is $50,000, you may be subject to a 15% capital gains tax rate. However, if you dispose of the same NFT in a year when the income is $25,000, you pay zero capital gains tax. For more details, check out our guide here

By disposing of your NFTs in a year when the taxable income is lower, you can reduce the tax liability from their sale or exchange.

Use Fiat Or Depreciating Crypto

As per IRS guidelines, if you purchase an NFT using fiat currency, your transaction is not subject to any tax as there’s no capital gain here.

If you use crypto for buying the NFT, which has increased in value since the time of its purchase, the transaction will be considered as an exchange of crypto assets attracting capital gains tax. 

However, this idea can also be used for tax benefits where you use crypto which has depreciated since the time of purchase to buy an NFT. The loss realized during the exchange can then be claimed as a capital loss.

Long-Term Capital Gains

In the U.S., NFTs are considered capital assets, and the sale or exchange of these NFTs results in a capital gain or loss. If an NFT is held for more than one year, the capital gain from their disposal is considered a long-term capital gain, which is taxed at a much lower rate than short-term capital gains.

While the short-term capital gains tax rate (for <12 months) ranges from 10-37%, the long-term capital gains tax ranges from 0-20%. 

By holding NFTs for more than one year before the disposal, you can take advantage of the lower tax rate, which can significantly reduce your tax liability.

Gift your NFT

Gifting NFTs to your family and friends is one of the best ways to share your assets without incurring tax liabilities. According to IRS, NFT gifts below $15000 are not subject to tax. For anything beyond this amount, you need to file a gift tax return form for information purposes only. 

The receiver of the NFT gift is free from any taxes as long as they don’t sell it for a capital gain. 

NFT Loan

Taking out loans against your NFTs can provide you with the necessary liquidity without triggering any taxable event. 

Since the interest amount for these loans are usually lower than the capital gains tax you would have incurred from the NFT’s disposal, this strategy can be useful in reducing your crypto tax bill while still allowing you to cash out your profits.

Tax Loss Harvesting

NFT Tax loss harvesting involves selling your NFTs that have decreased in value to realize a capital loss. This can then be used to offset capital gains realized from the disposal of other NFTs or investment assets.

In the United States, capital losses can be used to offset all of your capital gains and up to $3,000 of your income in a given year. Any excess capital losses can be carried forward to future tax years.

If you don’t know how to take advantage of this strategy to save thousands of dollars, try the Kryptos tax tool for free to reduce your tax bill. 

Wrapping Up

By carefully structuring your NFT transactions and leveraging tax-efficient strategies, you can minimize your tax burden and maximize your returns. Use the above tips to take advantage of the existing NFT loopholes to legally reduce your crypto tax bill.

Want us to calculate your NFT taxes in minutes? Sign Up Now for free. 

FAQs

1. Do you pay taxes when you buy an NFT?

Buying an NFT with fiat is not subject to any tax. However, if you are using cryptocurrency for buying NFT, you may incur capital gains tax depending on the price difference of the crypto from the time of its purchase.

2. How do I avoid NFT taxes?

While there’s no way to avoid NFT taxes completely, you can use several strategies including tax loss harvesting, NFT-backed loans, or gifting and donating your NFTs to reduce your tax liabilities. The only way to not pay taxes is to hold the NFT that you bought with fiat and not dispose of it.

3. How much do NFTs get taxed? 

Just like other crypto assets, NFTs are subject to both ordinary income tax and capital gains tax. Depending on your holding period, income bracket, filing status, and the type of transaction, you may incur income tax or short-term capital gains tax ranging from 10-37%. Long-term capital gains taxes on NFTs range from 0-20%. 

4. Can I write off my NFT losses? 

You can use your realized NFT losses to offset all your capital gains and up to $3000 of your other income for a given financial year. Any extra loss is carried forward to future tax years.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Do You Pay Tax on Lost, Stolen, or Hacked Crypto?

Still confused about whether you have to pay tax on lost, stolen or hacked crypto? Well then continue reading this blog as it will help you navigate this tricky topic with ease.

Navigating crypto taxation can be a tricky endeavour, especially when you’re dealing with unfortunate events like exchange shutdowns, wallet hacks, and scams. These events are all too common in the fast-paced world of crypto, but reporting them properly can make a big difference when it comes to claiming a loss.

In addition to external threats, many crypto investors have also experienced the heartbreaking loss of their assets due to internal mishaps. Private keys can easily be misplaced, sending crypto to the wrong wallet can be a costly mistake, and even the failure or damage of a cold storage device can result in permanent loss of funds. 

If you've experienced any of these situations, don't worry - this guide will help you understand the steps you need to take to report your stolen or lost crypto and get the most out of your claim. 

Do I have to pay taxes on Lost, Stolen, or Hacked Crypto?

If you store your cryptocurrency in a hot wallet, such as an exchange wallet or lower security platforms, you may be at risk of a cyber attack and might lose your cryptocurrency.

Once your cryptocurrency is stolen, you no longer have control over it. And from a tax perspective, you are not responsible for what happens to those assets afterwards. The question then becomes whether you can claim the losses at your cost basis when your cryptos were stolen or hacked from exchanges or wallets.

Whether or not you can claim a tax deduction for losses from stolen or lost crypto depends on the tax laws of your country. In some countries, such losses are not deductible, while others have more lenient laws, such as Norway and Australia, that allow for such deductions. It's important to consult with a tax professional who is knowledgeable about the laws in your country to determine your eligibility for claiming these losses on your tax return.

Reporting lost or stolen crypto in Norway?

If you're a Norwegian investor who has lost or had their crypto stolen, there's good news. The Skatteetaten has provided clear guidelines on how to report these losses on your tax return, and they're more sympathetic to investors than many other tax authorities.

In Norway, you can claim lost or stolen crypto as a capital loss, provided you have the evidence to support your claim. This evidence should demonstrate that you've made reasonable efforts to recover your lost investment. If you're able to do so, you can offset these losses against your capital gains.

The Skatteetaten says “If you have been scammed, the loss may be deducted if you can provide documentation or substantiate that the investment is finally deemed to be lost. This means that you must have tried to recover all or part of your investment.

To report a loss due to a scam, you can enter it in the "Other costs linked to other income" field in the "Minimum standard deduction and other deductions for expenses linked to employment and other income" card.

According to Skatteetaten, relevant documentation for claiming a loss due to a scam may include your transactions related to the scam, emails or other correspondence with the scammer, a police report, and any mention of the scam in the media or other sources. However, to minimize the chances of a dispute, it's essential to keep other important documents, such as:

  • The dates you received and lost your assets
  • The wallet address associated with the private key
  • Proof of the costs you incurred to acquire the lost or stolen crypto
  • Proof of the amount of crypto in the wallet before you lost access or had it stolen
  • Proof that you own the wallet or are in possession of the hardware that stores it
  • Proof of any transactions you made to the wallet

Reporting lost or stolen crypto in Denmark?

The Danish Tax Authority, also known as Skattestyrelsen, has provided clear guidelines on how to report lost or stolen crypto. Unfortunately, their belief is that losing access to your crypto wallet does not necessarily mean losing ownership of the asset. This means that many crypto investors in Denmark may not be eligible for a tax deduction if they've lost their wallet key or lost their crypto due to a scam, according to the Danish Tax Authority's ruling in SKM2018.104.SR.

However, there is a ray of hope. If you apply for a binding assessment, you can make a claim for your losses. To do this, you'll need to substantiate the permanent loss of access to your cryptocurrency with documentation and records. If you're successful in making a binding case, you can write off your losses as a special case.

Keep in mind that making a binding case can be complicated, so it's important to seek assistance from tax experts and legal consultants to ensure your case is strong enough to be considered by the tax authorities. By following the guidelines and seeking professional advice, you can navigate the complexities of crypto taxation in Denmark and potentially claim any eligible losses.

Reporting lost or stolen crypto in Sweden?

When it comes to lost or stolen cryptocurrency in Sweden, the Skatteverket has clear guidelines that you should be aware of. Let's say, if you lose your private key or your cryptocurrencies are stolen in a hacker attack, you won't be required to pay any taxes on them.

However, if you suffer a loss due to lost or stolen crypto, you cannot use this loss to offset your capital gains taxes. In other words, you need to exclude the corresponding cost basis while calculating your taxable gains or losses. Unfortunately, this loss cannot be used to reduce your tax liability or offset your profits.

Although it may be disappointing that you can't claim a tax deduction for losses incurred from lost or stolen crypto, it's crucial to understand these regulations to avoid potential penalties. By maintaining accurate records and seeking guidance from a tax expert, you can navigate the intricacies of crypto taxation in Sweden and ensure compliance with Skatteverket's policies.

Reporting lost or stolen crypto in the US?

The IRS recognizes two types of losses for capital gains - casualty losses and theft losses. Casualty losses, such as losing access to your wallet or sending crypto to the wrong address, used to be tax deductible but are no longer unless there is a federally declared disaster. Theft losses, such as when your crypto is stolen from your wallet or your exchange is hacked, are also no longer tax deductible. 

According to IRS guidance, casualty losses were deductible before the 2017 tax reform. However, now only federally declared disasters can be deducted, which is unlikely to apply to crypto. This means that if you lost your private keys or made a mistake, you cannot claim it as a capital loss.

Thief losses from crypto are also no longer tax deductible since the tax reform. If you lose crypto due to a hack or scam, you cannot claim it as a loss and offset it against your gains. The best option is to write it off and exclude it from your calculations.

However, if you are able to substantiate your ownership of the assets and provide documentation from the exchange that specifies the amount lost in the hack, it may be possible for you to deduct losses incurred before 2017.

Reporting lost or stolen crypto in Canada?

The Canadian Revenue Agency (CRA) has not provided any clear guidelines on how taxpayers should report lost or stolen cryptocurrency as a capital loss. However, taxpayers can deduct capital losses due to theft for other assets, so it is possible that the same rules apply to cryptocurrency.

In Canada, the adjusted cost basis method is used to calculate capital gains and losses for tax purposes. This means that if you lose your cryptocurrency, you may only be able to claim a loss for your original investment, not any potential profits.

For example, let's say you bought 10 ETH for $1,000 a few years ago, and this year you lost them when their value was $20,000. In this case, you may only be able to claim a loss of $1,000 on your tax return.

However, it's important to keep in mind that claiming a loss for lost or stolen cryptocurrency can be complex. It's best to seek guidance from an experienced accountant before attempting to report it on your tax return.

FAQ

1. Can I claim stolen or lost crypto as a capital loss?

The answer to this question doesn't have a simple answer since it depends on where you live. In most countries, tax authorities do not permit taxpayers to claim stolen or lost crypto as a capital loss. 

However, a few countries, such as Australia and Norway, have more lenient laws on this matter, which allow you to claim stolen or lost crypto as a capital loss. However, keep in mind that such claims may require a rigorous verification process to ensure their legitimacy.

2. Do I need to report stolen crypto on my tax return?

The answer to this question depends on the tax laws in your country. In general, most countries require taxpayers to report all sources of income and capital gains, including those from cryptocurrency. If you've experienced a theft or loss of cryptocurrency, you may be able to claim it as a capital loss on your tax return, subject to certain conditions and limitations.

Tax laws surrounding cryptocurrency are still evolving and can vary widely from country to country. It's always best to consult with a tax professional or accountant who is familiar with the tax laws in your country and can advise you on how to accurately report your cryptocurrency transactions on your tax return.

3. My cryptocurrency was destroyed. Can I claim a loss?

It is true that cryptocurrency itself cannot be destroyed, but there are scenarios where you may lose access to your cryptocurrency holdings. For instance, if the crypto wallet where you stored your Bitcoin holdings gets destroyed in an accident or if you lose your private keys, you may permanently lose access to your cryptocurrency.

If you suffer a personal casualty loss, such as the loss of your crypto wallet, you may not be able to claim a tax deduction on it, depending on the tax laws in your country.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Understanding Celsius Crypto Loss & Taxes: What You Need to Know

Celsius filed for bankruptcy and paused all withdrawals. Learn what it means for investors, its tax implications, and if you can write off your crypto losses.

Celsius is one of the leading exchanges in the world that filed for bankruptcy in July 2022, leaving many investors stuck. Even though the platform has paused all withdrawals, you may still need to report Celsius transactions in your tax returns.

In this article, we discuss whether you can claim your Celsius losses and break down the tax implications of these Celsius transactions. 

Please note that no specific IRS guidelines are released at the moment and the information presented is subject to change.

What Does The Celsius Bankruptcy Mean For Taxes?

Celsius discontinued withdrawals and filed for bankruptcy in July 2022, preventing investors from accessing their money. 

But on January 4, 2023, the US Court declared that based on Celsius’s Terms of Use, when the cryptocurrency assets were deposited in Earn Accounts, they became Celsius’s property and the remaining assets in these Accounts on the Petition Date became the property of the bankruptcy estate.

If you’re a customer with an Earn account in Celsius, you are currently considered an ‘unsecured creditor’. This means the preferred equity holders of CNL will be preferred over you for repayment if ever the Celsius funds are liquidated. 

However, from the tax perspective, this means that the transfer of crypto from the unsecured creditors to Celsius whenever you deposited funds into your Earn account is a form of disposition. 

This makes it almost certain that you may have realized a gain or loss whenever you transferred funds to your Earn account and it is taxable. 

Your cost basis will be calculated based on the fair market value of the crypto at the time of transfer to the Earn account. This makes the calculation of the gains or losses unclear as the customer doesn’t receive anything in return at the moment of the transfer.

It’s important to note that the IRS hasn’t defined any clear guidelines on the Celsius Network taxes. Having said that, the general tax laws may likely be applicable. We recommend consulting with a tax professional to determine your Celsius taxes. 

Can Losses From The Celsius Bankruptcy Be Claimed?

Generally, you have to dispose of your crypto to realize any loss on it. But since investors are not able to access their Celsius funds, it’s still unclear whether they will get back their assets or how they should report the losses due to bankruptcy. 

If we consider the general crypto tax regulations in countries including:

  • USA: IRS doesn't allow you to claim any lost, stolen or hacked crypto as a capital loss.
  • UK: To declare your assets as lost, you’ll have to file for a Negligible Value Claim with the HMRC.

The case is still ongoing and it is possible that a part of the investor assets may be recovered. So, it’s still early to determine what extent of your assets should you claim as a loss. 

It’s important to note that once you declare your crypto assets as “lost”, you lose the right to claim them if the access is ever gained back.

In a recent hearing held on 18 April 2023 by Judge Glenn, a request filed by Celsius’ Unsecured Creditors (UCC) to file an all-account holder “class claim” against Celsius and other debtors for claims like fraud got approved.

If you have already filed other claims before this judgement, it’s still unclear how you can revoke them and join the class claim. You can know all the latest updates on the Celsius case here

Tax Implications On Celsius Staking Rewards

Even though there is no way to withdraw these funds, some platforms including Celsius are still paying staking rewards to their users.

In most countries, these rewards are considered ordinary income and are taxable. Typically, you would have to report these in your tax returns. 

It is advisable to consult a tax professional and understand how you can treat your inaccessible staking rewards for tax purposes.

How To Report Your Crypto Taxes?

Looking for an easy way to calculate your crypto taxes? Kryptos supports major exchanges and wallets to calculate your taxes in minutes.

Here’s how you can do it:

  • Sign Up on Kryptos.
  • Connect your wallet and auto-sync using API keys (read-only) or upload CSV files

  • Kryptos will automatically categorize your taxable transactions, calculate your crypto taxes, and identify any tax-saving claims
  • Download your tax report that complies with your jurisdiction guidelines.

FAQs

1. Can I claim Celsius losses on taxes?

There are no clear guidelines on how you can claim your losses caused due to the Celsius bankruptcy, However, many professionals believe the typical crypto laws apply until there is any further notice from the IRS. 

2. Can I get a tax break for crypto losses?

Even though the withdrawals are paused, you will still have to report your taxable transactions in your tax returns.

3. Will Celsius clients get their money back?

If you are an unsecured creditor, chances are you will be considered at the end once the preferred equity gets the repayment. The case is still ongoing and there are no clear guidelines for the investor funds.

4. Do I have to pay taxes on Celsius?

Yes, you will have to report your Celsius transactions in the tax returns as they are considered taxable.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Crypto Accounting 101 - Guide to Help Getting Started

Struggling with crypto accounting? Don’t worry we’ve got the perfect crypto accounting guide to help you get acquainted with the basics.

Investing in crypto is a fascinating proposition owing to the lucrative return rates but most people fail to maintain a record of their investments and end up getting in trouble when it’s time to report transactions to the tax authorities.

We don’t want you to end up in trouble and that’s why we decided to put together this comprehensive tax accounting guide to help you with the ins and outs of crypto accounting. 

Note that every country taxes crypto differently owing to the region-specific tax laws, so it’s only natural that accounting strategies may vary depending on the country you live. However, basic accounting remains the same for most countries, because gains made with crypto assets are taxed as capital gains or income tax or both. So if you’re in one of these countries, this guide is for you.

Once you’re on the other end of the guide, you’ll have a decent idea about how to maintain your books without hiring a tax accountant.

So let’s get started…

Is Crypto Not a Currency?

Crypto thrives on the elementary premise that it’s a currency, however, that’s not how most people view it. Crypto is most commonly perceived as an investment avenue, one that is aggressively volatile and therefore offers a chance for investors to earn astronomical returns on their investments. The percentage of crypto transactions that actually involve the use of crypto as a currency is nominal.

Therefore, it’s only natural for regulatory bodies to class it as an asset instead of a currency, because if crypto is considered a currency from a regulatory perspective, most transactions would be tax-free.

This is the reason why crypto is treated as a capital asset in most countries (more like real estate than currency). Listed below are some of the many countries that consider crypto to be a capital asset instead of a currency for tax purposes:

  • United States
  • Canada
  • United Kingdom
  • Australia
  • Germany
  • Switzerland
  • Japan
  • South Korea
  • Israel
  • Singapore

Even the Scandinavian countries (Denmark, Sweden, Norway) follow suit when it comes to crypto. So while accounting for your crypto transactions, you should treat them like a capital asset instead of a currency.

How to Record Crypto Transactions in Your Books?

Before we get into this, note that we’ve chosen “$” as the preferred currency for your convenience, the numbers are to be handled in the same way regardless of where you live and what currency you use. So now that we’ve got that out of the way, let’s start.

As a crypto investor, here are the basic sections you should have in your books:

  • Asset inventory: List all the cryptocurrencies you own, the quantity, and the purchase price of each.
  • Sales: Record all the sales of your cryptocurrencies, including the date of the sale, the quantity sold, and the sale price.
  • Purchases: Record all the purchases of cryptocurrencies, including the date of the purchase, the quantity purchased, and the purchase price.
  • Fees: Keep track of all costs associated with buying, selling, or transferring cryptocurrencies. This includes transaction fees, exchange fees, and any other related fees.
  • Gains and losses: Calculate your gains or losses on each sale of cryptocurrency by subtracting the cost basis from the sales price. Keep track of these gains and losses for tax purposes.

To understand how you can accommodate a simple buy/sell transaction in your books, let’s consider an example:

 Let's say you purchased 1 Bitcoin (BTC) for $10,000 on January 1st, 2023, and sold it for $12,000 on March 1st, 2023. The transaction would impact your bookkeeping records in the following way:

Asset Inventory

  1. You would add 1 BTC to your asset inventory with a cost basis of $10,000.

Purchases

  1. You would record the purchase of 1 BTC for $10,000 on January 1st, 2023.

Sales

  1. You would record the sale of 1 BTC for $12,000 on March 1st, 2023.

Fees

  1. Assuming that there were $50 in fees associated with the purchase and sale of the BTC, you would record these fees as follows:


Gains and Losses

  1. You would calculate the gain or loss on the sale of the BTC by subtracting the cost basis from the sales price. In this case, the gain would be $2,000. However, when you take into account the $50 transaction fee on the buy and sell transactions, you end up with a $1,900 gain.

Balancing the Books

  1. At the end of the accounting period, you would balance the books to ensure that the total debits equal the total credits. In this example, the total debits would be $10,050 + $50 = $10,100, and the total credits would be $12,000. The difference between the debits and credits is $1,900, which should be recorded in the gain/loss segment of your book.

Mining Cryptocurrencies

When you mine new tokens, you are creating value for yourself and adding new tokens to the global supply. It’s the equivalent of printing new currency notes in the fiat ecosystem. Any gains incurred from mining activities are treated as income(at least in the US), while the transaction fees(gas fees) paid to mine these tokens are treated as an expense.

Let's say that you mined 0.5 BTC, which has a fair market value of $6,000, and that you earned $500 in transaction fees for the transactions included in the block.

The table below shows how the mining transaction would impact your bookkeeping records using double-entry accounting:

In the "Mining Reward" transaction, you would record a credit of $6,000 in the Income section of your books. This amount represents the fair market value of the BTC that you mined at the time of mining, and it is considered your income. In the "Transaction Fees" section, you would record a debit of $500 to your expense account for the transaction fees that you earned.

Note that this is simply an account of how you can track all your transactions and isn’t necessarily indicative of how these transactions are taxed. The taxation of your gains or income made from these transactions depends on your location. You can access the nation-specific tax guides on our website to better understand how these transactions are taxed.

Trading Crypto Assets

Cryptocurrencies are classified as property rather than currency, which means that trading them is akin to day trading. To keep track of your transactions, you need to record the value of the cryptocurrency at the time you acquire it, and then record the sale for the value of the cryptocurrency on the date of the sale. If the sale price is higher than the purchase price, you'll record a gain, but if the sale price is lower, you'll record a loss.

When it comes to filing your taxes, you'll need to report these gains or losses on the capital gains and losses form, specifying whether they are long-term or short-term depending on the duration of time you held the cryptocurrency.

FAQs

1. Can I use LIFO (last in, first out) or FIFO (first in, first out) accounting for my crypto investments?

The use of LIFO (last in, first out) or FIFO (first in, first out) accounting methods for crypto investments may vary depending on the country and its local tax regulations. Some countries may allow either method, while others may have specific rules regarding which method to use. It is important to consult with a tax professional or accountant familiar with the local tax laws to determine which method is acceptable and how to properly report and calculate gains or losses for crypto investments. In general, FIFO is considered a conservative approach and is commonly used in many countries as the default method for determining the cost basis in securities, including crypto investments.

2. What are the good first steps to take when starting out as a crypto investor?

Here are some good first steps to take when starting as a crypto investor:

  • Before investing in any cryptocurrency, it is important to do your research and understand the technology and the risks involved. There are many resources available online, such as whitepapers, forums, and news articles, that can help you learn more about cryptocurrencies.
  • There are many cryptocurrency exchanges available, but not all of them are trustworthy or secure. Choose an exchange that has a good reputation, strong security measures, and supports the cryptocurrencies you are interested in.
  • Diversifying your portfolio is important to minimize risk. Consider investing in different cryptocurrencies with varying levels of risk and return potential.
  • Cryptocurrency prices can be volatile, so it is important to have a long-term strategy and avoid making impulsive decisions based on short-term market movements.
  • Keeping accurate records of your transactions is important for tax purposes and to track your portfolio's performance over time. Use a spreadsheet or accounting software to record your transactions and keep track of your gains and losses.
  • Cryptocurrency investments are subject to capital gains taxes in many countries. Be prepared to report your gains and losses accurately on your tax returns and consult with a tax professional if necessary.

3. How do I determine the fair market value of my cryptocurrencies?

The fair market value of your cryptocurrencies is determined by the price at which they could be sold in an arm's length transaction between a willing buyer and a willing seller, both of whom are knowledgeable about the asset and acting in their own best interest.

The easiest way to determine the fair market value of your cryptocurrencies is to look up the current market price on a reputable exchange or price aggregator website. However, keep in mind that the fair market value can fluctuate widely and rapidly, especially in the volatile crypto market.

If you're trading cryptocurrencies frequently, you may need to determine the fair market value of your holdings more frequently, such as on a daily or weekly basis. In such cases, you can use the average price of the cryptocurrency over a period of time as a reasonable estimate of its fair market value.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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How to Handle Taxes and Reporting in Bankruptcy or Loss Due to Exchanges Failing

Do you have funds stuck in an exchange owing to bankruptcy proceedings? Well, don’t worry because we’ll tell you how to handle these losses in this blog.

Crypto prices crashed back in 2022 because multiple centralised crypto exchanges filed for bankruptcy simultaneously. The crypto market in its entirety suffered gravely from rising inflation rates, Terra Luna's collapse, and the catastrophic downfall of SBF’s FTX exchange.

The crypto market cap stood at $3 Trillion back in 2021 and it’s a little over $1.2 Trillion at the time of writing. Bitcoin’s price is almost 1/3rd of what it was at the peak of the dream crypto run. Crypto happens to be one of the most popular investment avenues for retail investors across the united states. According to a report by Poweresearch, more than 16% of Americans have personally traded or invested in crypto, despite the high-risk profile of the asset.

With exchanges collapsing one after the other, these investors have no choice but to worry about how to claim deductions on their tax reports to at least minimise the losses to some degree. If you happen to be one of those investors, you’re in the right place because we’re going to look at all the major collapses and their bankruptcy proceedings, and will then move on to how you can recoup these losses.

So without beating around the bush, let’s get started…

Why did it happen?

The crypto industry's downfall was the result of multiple events that occurred one after the other. However, one event, in particular, tipped the scale towards the wrong direction. The Terralabs(Luna) collapse. 

The Luna collapse was a truly significant event that negatively impacted the crypto space owing to the size and unexpectedness of the event. Terralabs UST token was a stablecoin(a non-volatile cryptocurrency pegged against $1) which was stabilised by another token called LUNA. LUNA and UST were associated in a way that any UST holder could swap 1 UST token for $1 worth of LUNA tokens.

Terralabs attracted a lot of attention towards the UST token by offering a staggering 20% annual interest to anyone who staked their UST tokens for a fixed period to stabilise the blockchain. On May 7, 2022, more than $2 billion worth of UST tokens were unstacked and swapped for LUNA tokens within 24 hours and UST tokens lost their dollar peg by 10 cents to dollar. 

This proved to be catastrophic for Terralabs as users started swapping UST tokens for LUNA tokens immediately, flooding the market with more LUNA tokens than there was a demand for and within hours LUNA tokens lost 99.99% of their value, bringing mayhem to an end.

3AC (3 Arrows Capital- one of the leading investment funds) was one of the primary investors in UST.

What happened to 3AC?

3AC had invested $200 million into LUNA, and all of that was gone within a few hours. They also had $10 billion in other crypto assets under management, but rising interest rates and the overall effect of the LUNA crash on the crypto market led to 3AC filing for bankruptcy on July 1, 2022. At the time of filming bankruptcy 3AC had the biggest names in the crypto space like Celsius, Voyager, BlockFI, and Genesis as its creditors.

The Final Piece: FTX Collapse

Alameda Research, an investment fund and a sister company to one of the biggest crypto exchanges in the US at the time, FTX, was also caught up in the Luna collapse, which led to a liquidity crunch for Alameda. FTX loaned investor deposits to Alameda to help fund the insolvency, but as soon as the news hit the street, Binance announced that it was going to sell $585 million worth of FTT tokens. What followed was a classic bank run on FTX and the exchange had to go for a bankruptcy filing on November 11.

What followed was a chain reaction:

  • Celsius and Voyager both filed for bankruptcy as they were creditors to 3AC
  • Since BlockFi was right in the middle of being sold to FTX, they had to follow suit and file for bankruptcy as well
  • Genesis Global halted operations under a lot of pressure on November 16, 2023

Bankruptcy Procedures and Their Implications

Investors stuck in the middle of collapsed exchanges and bankruptcy procedures often end up waiting for a legal settlement in hopes of recovering at least some of their funds, but the only issue with this approach is that bankruptcy proceedings take years to conclude. For instance, Enron took 7 years to reach a $7.2 billion settlement, and another crypto exchange called Mt. Gox filed for bankruptcy back in 2014 and is yet to pay any compensation to any of its creditors or shareholders.

Moreover, there’s this concept of secured and unsecured creditors. Creditors with security interests receive priority in repayment, whereas unsecured creditors can only expect to be repaid on a voluntary basis following a judgment in their favor. If the exchange fails to pay the settlement amount you can sue them in court for the money. The best way to know whether you’re a secured or unsecured creditor is to contact an attorney and substantiate your position.

Experts predict that 40-50% of the funds locked with FTX are recoverable, however, that may take time judging from how past events have unfolded.

Your next Step (Tax Options and Legal Considerations)

For people stuck in the middle of bankruptcy proceedings and troubles in crypto exchanges, here are all your legal and tax options that you can explore to minimise your losses or recover your lost funds.

Casualty or Crypto Theft Loss

Sam Bankman-Fried’s actions led to FTX's collapse. By lending investor deposits to Almaeda, SBF went against company policies and betrayed the trust of customers, which is a clear case of fraud and the losses can be claimed as a deduction. But according to the Tax Cuts and Jobs Act of 2017, there’s a 2% ceiling on the itemised deductions and coincidentally crypto theft losses fall under itemised deductions, and since losses due to fraud or theft can only be claimed in the year they occurred, reporting these losses would have zero impact on your tax bill.

Bad-Debt Loss (Non-Business)

According to IRC Section 166(D), bad debts can be used as a deduction on tax bills given that the creditor may prove a creditor-debitor relationship and the status of the loan is wholly worthless. Partial deductions are not allowed in case of bad loans. Note that even individuals can claim bad-debt deductions in a non-business setting. The Celsius case for instance offers a solid premise for a debitor-creditor relationship because the terms and conditions of Celsius state that any assets transferred to the platform in an attempt to earn constitutes a loan from the user to the platform and you can use this to your advantage and claim a tax deduction.

Worthless Investment

According to IRC Section 165(G), worthless securities can be used as a deduction. The only problem is that the IRC doesn’t consider crypto to be a form of security and classifies it as a capital asset, thus making this option inaccessible for crypto investors.

Abandonment Losses and Deductions

According to the IRC section 165(A), abandonment losses can be claimed as a deduction, if the following conditions are met:

  1. Proof of ownership of abandoned assets
  2. Proof of intent to abandon the asset
  3. Active attempt to abandon the asset

If you can prove all three and back them up with relevant documents, you can claim a deduction. For insolvencies involving multiple cryptocurrency exchanges, it's wise to keep records of purchases on each platform to establish ownership. To demonstrate intent to abandon, written documentation of conversations with legal counsel and bankruptcy entities may be necessary. Accurate records of transactions and claimed deductions are critical, and taxpayers should download their transaction history before losing access to their accounts.

Loss Due to Ponzi Schemes

According to the IRS Revenue Ruling 2009-9 offers relief to victims of Ponzi schemes. The example describes what happens when you end up investing in a Ponzi Scheme.

If investor A opened an investment account with B, giving B power of attorney to purchase and sell securities on A's behalf. A contributed a total of $120x and reinvested any earnings. B provided account and tax reporting statements that reflected gains and losses. In Year 7, A took a distribution of $30x. In Year 8, it was discovered that B's investment advisory was a fraudulent "Ponzi" scheme. A can report a loss equal to his/her initial investment.

But the bigger question is whether the FTX collapse can be considered a Ponzi scheme. According to Ruling 77-17, officers involved in fraudulent activities are not enough for the event to be categorized as a Ponzi Scheme.

Claiming the Loss is Not Always the Best Approach

Sometimes waiting for the settlement can be a better choice for you. Consider the following example:

Suppose Taxpayer B had $5,000 on Bitstamp and a tax rate of 25%. If B claims an ordinary loss of $5,000 under the abandonment of intangibles rules, the taxpayer could get a tax benefit of $1,250 (5,000 x 25%). Waiting for the completion of the Bitstamp bankruptcy proceedings could result in a better cash position, and the taxpayer might also be able to claim a $3,000 capital loss on top of the $2,000 received due to the bankruptcy proceedings. Nonetheless, taxpayers should consider the time value of money and the length of the bankruptcy proceedings before deciding whether to wait.

FAQs

1. How does a crypto exchange failure affect me?

A crypto exchange failure can have various impacts on investors. It can result in a loss of assets, which can have financial implications. Additionally, investors may face challenges in accessing their funds or recovering their losses due to the legal and regulatory complexities involved in crypto exchanges. For tax purposes, investors may be able to claim a tax deduction for losses due to a crypto exchange failure, but the process of claiming the deduction can be complex and time-consuming. It is important to keep accurate records and seek professional advice to navigate the tax implications of a crypto exchange failure. Overall, it is essential to exercise caution and diligence when investing in cryptocurrencies and to carefully consider the risks involved.

2. How are losses due to a crypto exchange failure treated for tax purposes?

For tax purposes, losses due to a crypto exchange failure may be treated as a capital loss, which can be used to offset capital gains or, in certain circumstances, up to $3,000 of ordinary income per year. The specific tax treatment of losses due to a crypto exchange failure can depend on various factors, including the taxpayer's tax situation and the timing and nature of the loss.

It is important to keep accurate records of all transactions and communications related to the exchange failure, including any attempts to recover lost funds. Taxpayers should also consult with a tax professional for guidance on how to properly report the loss and claim any available tax deductions or credits.

3. How long does it take to claim a tax deduction for losses due to a crypto exchange failure?

The process of claiming a tax deduction for losses due to a crypto exchange failure can be complex and time-consuming, and the timeframe for claiming the deduction can vary depending on the specific circumstances of the loss.

In general, taxpayers must first establish that a loss has occurred and determine the amount of the loss. This may involve documenting transactions, communications with the exchange, and any attempts to recover lost funds.

Once the loss has been established, taxpayers must determine whether it qualifies as a capital loss or an ordinary loss, which can depend on factors such as the taxpayer's tax situation and the timing and nature of the loss.

After determining the type of loss, taxpayers must properly report the loss on their tax return, which may involve completing additional forms and providing supporting documentation.

Overall, the timeframe for claiming a tax deduction for losses due to a crypto exchange failure can vary depending on the complexity of the situation and the amount of documentation required. It is essential to consult with a tax professional for guidance on how to properly report the loss and claim any available tax deductions or credits.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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How To Streamline Your Crypto Accounting With Crypto Tax Software

Explore the features and advantages of crypto tax software in this guide to simplify your crypto accounting process and ensure tax compliance.

With thousands of transactions to manage that all come with different tax implications, having a helping hand is always better. Now, what if we tell you there’s a tool that can automate your accounting processes and calculate your crypto taxes in just a few minutes?

That’s what crypto accounting software can do for you. And to help you out, we have created this guide discussing everything you need to know about crypto accounting software. 

We also share the benefits of using this software over manual accounting, key features to look out for while selecting the right platform, and how you can use it for the best output. 

Understanding Crypto Accounting Software

Crypto accounting software is a specialized tool to help investors, traders, and businesses manage, track, and report their cryptocurrency transactions. It streamlines accounting processes by automating complex tax calculations, ensuring data consistency, minimizing errors, and providing accurate reporting.

It does so by automatically importing your crypto transactions from different exchanges and wallets, allowing you to manage your portfolio and its tax implications at one place.

This software can calculate the cost basis and the fair market value of different crypto assets at the time of the trade, recognizing any realized gains or losses from the events.

It also identifies tax-saving opportunities and ensures you save maximum on your taxes. The accounting work that takes days if done manually can be done in just a few minutes, thanks to these platforms.

Benefits of Using Crypto Accounting Software

Managing your digital assets manually can be time-consuming and prone to errors. By using the right crypto accounting software, you can:

  • Streamline Accounting Processes: Crypto accounting software automates and simplifies the management of your digital assets, making it easier to stay up-to-date with your portfolio.
  • Save Time And Ensure Accuracy: By automating calculations and ensuring data consistency, crypto accounting software minimizes the risk of errors and saves you hours of manual work.
  • Get Increased Security and Transparency: Accounting software offers multiple security features, protecting your sensitive financial data, and providing transparent reporting for tax purposes.
  • Achieve Scalability: As your portfolio grows, managing your investments can become increasingly complex. Crypto accounting software is designed to scale with your needs, ensuring that you can effectively handle your assets at all times.

Key Features of Crypto Accounting Software

Here are some of the features that a crypto accounting software should have to manage your taxes effectively.

Transaction Tracking and Categorization

You should be able to easily track and categorize your cryptocurrency transactions with your accounting software. It does so by automatically importing data from your connected exchanges and wallets and implementing tags and labels.

Crypto tax software like Kryptos allows you to import all your transactions including DeFi and NFTs automatically and categorize them based on different variables (e.g. deposits or withdrawals). This approach not only helps you manage your portfolio better but also allows for more accurate tax reporting and compliance.

Reporting and Tax Calculations

Crypto accounting software streamlines the tax calculation process by generating accurate tax reports that are compliant with your country’s tax regulations.

They support multiple accounting methods including LIFO and FIFO, ensuring that your tax calculations are tailored to your jurisdiction's guidelines. You can easily track your taxable capital gains and claim losses in the dashboards so that you don’t miss out on any taxes or end up overpaying them.

Integration With Exchanges and Wallets

Crypto accounting software seamlessly integrates different cryptocurrency exchanges and wallets directly to the platforms via API or CSV import, minimizing the need for manual entry. 

All you need to do is add your wallet to the platform and it can automatically do the rest for you. The integration list plays a crucial role in selecting a crypto accounting software as more the integrations, the easier it will be to track all your transactions in one place. 

Kryptos supports 200+ wallets and exchanges, 50+ blockchains, 1000+ DeFi protocols, and even NFTs so that you never miss out on any transactions. 

Automation of Accounting Tasks

From tracking transactions to generating reports, crypto tax software automates several accounting tasks, freeing up your time for other important aspects of managing your investments.

You can automate tasks like figuring out the cost basis of your traded assets, tracking taxable events from different wallets, and even identifying tax-saving opportunities.

Customization and Flexibility

Crypto accounting software offer customization options that allow you to tailor the platform to your specific needs and preferences. 

With customizable settings, you can choose the accounting method, currency, tax reports, and even the platform's visual appearance.

User Interface

Most crypto accounting software comes with an intuitive user interface, simplifying the process of managing your digital assets. Good software should have a functional interface while prioritizing user experience.

Best Practices for Implementing Crypto Accounting Software

To ensure you are using the crypto accounting software to its best potential, we have listed 5 best practices to follow while using these platforms.

  • Get started by choosing the right software. Select a solution like Kryptos that caters to your specific needs and offers a range of features to help you manage your crypto accounting and taxes.
  • Review your transactions often to maintain an accurate record of your finances and minimize errors.
  • Stay updated on the latest tax regulations and requirements to ensure you remain compliant with the federation laws.
  • Regularly back up your accounting data to prevent loss in the event of software or hardware failure.
  • Utilize the security features offered by your crypto accounting software to protect your sensitive financial information.

Wrapping Up

Using crypto accounting software can significantly simplify your accounting processes, save time, and ensure accuracy in managing your digital assets. 

As you grow your crypto portfolio, understanding your taxes becomes crucial. By using a powerful crypto tax software like Kryptos and following the best practices outlined above, you can simplify your crypto accounting.

Want to learn how Kryptos can help you with your crypto taxes? Explore Now.

FAQs

1. What is crypto accounting software and how can it help streamline accounting processes?

Crypto accounting software is a specialized tool designed to help investors, traders, and businesses manage, track, and report their cryptocurrency transactions. It streamlines accounting processes by automating complex calculations, ensuring data consistency, minimizing errors, and providing comprehensive reporting. By using crypto accounting software, you can save time, maintain accurate records, and make informed decisions about your digital assets.

2. What are the key features of crypto accounting software and how do they benefit users?

The key features of crypto accounting software include:

  • Transaction tracking and categorization: Helps you stay organized and informed about your investments.
  • Reporting and tax calculations: Streamlines tax calculation and generates detailed reports to help you comply with tax regulations.
  • Integration with exchanges and wallets: Ensures smooth data flow and minimizes manual data entry.
  • Automation of accounting tasks: Saves time and reduces the risk of errors by automating tasks.
  • Customization and flexibility: Allows you to tailor the platform to your specific needs and preferences.

3. How do you choose the right software for your needs and ensure data accuracy and consistency?

To choose the right software, consider factors like ease of use, available features, integration capabilities, reporting options, and pricing. Look for a solution which offers a range of features that cater to different user needs. 

4. What are the best practices for implementing crypto accounting software?

Best practices for implementing crypto accounting software include:

  • Choosing a solution that meets your specific needs and offers a range of features.
  • Regularly reviewing your transactions and ensuring data consistency across all platforms.
  • Staying updated on the latest tax regulations and requirements.
  • Regularly backing up your accounting data.
  • Utilizing the security features offered by your crypto accounting software.

5. How do you ensure compliance with tax regulations when using crypto accounting software?

To ensure compliance with tax regulations when using a crypto accounting software:

  • Generate detailed financial and tax reports using the software's reporting features.
  • Stay updated on the latest tax regulations and requirements in your jurisdiction.
  • Regularly review your transactions to maintain accurate records.
  • Use the software's automation features to calculate your tax liabilities and track your taxable events.
  • Consult with a tax professional to ensure you're following the appropriate tax laws and reporting requirements.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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A Guide to Crypto State Taxes in 2023: Current State of Affairs and Prospects Ahead

This article guides you on how different states in the US tax crypto and what are the implications of using crypto as a currency across the states of the US. Read on to know more -

The IRS has issued clear US crypto taxation guidelines and intends to make crypto tax filing convenient for US residents. However, many states are yet to release any specific guidelines concerning the nature of taxes, specifically income tax and sale and use tax. 

Our objective today is to give you a thorough understanding of how different states in the US tax crypto and what are the implications of using crypto as a currency across the states of the US. But before we hop into it, here’s a quick recap of how the IRS treat crypto for federal tax purposes.

Key Crypto Terms (as defined by the IRS)

Virtual Currency

The IRS considers crypto to be a form of virtual currency and it defines it as follows:

“...a digital representation of value that functions as a medium of exchange, a unit of account, and a store of value other than a representation of the United States dollar or a foreign currency.”

The following can be categorised as virtual currency according to the IRS:

  • Convertible crypto assets and currencies
  • NFTs
  • Stablecoins

Any form of virtual currency that is not backed by a physical asset like gold, or silver and acts as a substitute for real currency in any transaction is categorized as a convertible crypto asset.

Cryptocurrency

A cryptocurrency is again a form of convertible crypto asset that can be:

  • Used to buy a product or service
  • Swapped for some other type of asset
  • Transferred between users via digital wallets

According to Notice 2014-21, the IRS defines cryptocurrency as:

“... a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.  A transaction involving cryptocurrency that is recorded on a distributed ledger is referred to as an “on-chain” transaction; a transaction that is not recorded on the distributed ledger is referred to as an “off-chain” transaction.”

Tangible Personal Asset

Tangible personal property is an asset class that exists in the real world unlike stocks, bonds, and patents and it is also completely different from real-estate assets like land, buildings, or apartment units. 

The following assets are considered tangible personal assets by the IRS:

  • Artwork
  • Antiquities
  • Furniture
  • Collectables
  • Heavy Machinery and Equipment

Crypto Mining

Crypto mining is the process by which new crypto tokens enter circulation. It’s the equivalent of printing new fiat currency. Crypto mining involves validating ledger transactions on a blockchain using powerful computers for which the miners are rewarded with new tokens.

Recent Events That Have Reshaped the Crypto Landscape

Crypto prices have been in a down swirl due to a mix of bad economic conditions and certain high-profile events in the crypto space. For instance, the Terralabs collapse that led to the first ever stablecoin losing its dollar peg or the FTX collapse that wiped out billions of dollars of investors’ money.

According to the official complaint filed by the SEC, FTX’s founder Sam Bankman-Fried was involved in the misuse of investor funds and loaned investors’ funds to Alameda(FTS’s sister company) and was therefore involved in fraud.

This was one of the biggest scams in the history of crypto and had severe repercussions in terms of the market. At the time of drafting this blog, Bitcoin and Ethereum are down 55.8% and 58.33% respectively and the price has been hovering in that range for over a year now. The market is showing some signs of recovery with Bitcoin crossing the $30,000 mark after almost a year, but any favourable deductions about the market are subject to crisis aversion.

State-Specific Guidance on Crypto Income Taxes

Fortunately for you, most states treat crypto the same way IRS does when it comes to taxes. States don’t consider crypto to be a form of currency, but instead, treat it as a capital asset (more like a property) and therefore when you go on and sell or exchange your crypto you attract tax liabilities. If you sell or exchange your crypto and receive something with more monetary value than your cost basis, you pay capital gains or income tax on the difference.

However, not all states have released clear guidelines regarding the taxation of crypto assets and there’s a still lot of confusion regarding how most states treat crypto. Here’s a list of all the states that have clear tax guidelines around crypto transactions:

  • Wisconsin
  • New York
  • New Jersey
  • Illinois
  • Michigan

We’ve discussed the tax rules from these states in detail in later sections of the blog.

The Concept of Apportionment and How It Affects Virtual/Cryptocurrency Taxation

Apportionment is the process of dividing and allocating taxes or tax liabilities among different jurisdictions based on a formula or method. This is typically done when a taxpayer has activities or operations in multiple jurisdictions, such as when a business operates in several states or countries.

In the US, each state has its own set of tax laws and regulations, and they use different methods for apportioning taxes among taxpayers who have operations or activities in multiple states. One common method used by many states is the three-factor formula, which takes into account the percentage of sales, property, and payroll that are attributable to each state.

When a business operates in multiple states, each state has its method for dividing the tax liability among the different states. The most common method is a "three-factor formula" that takes into account the percentage of sales, property, and payroll that occur in each state.

For example, let's say a business operates in three states, with 50% of its sales occurring in State A, 30% in State B, and 20% in State C. The business has 40% of its property and 60% of its payroll in State A, 30% of its property and 20% of its payroll in State B, and 30% of its property and 20% of its payroll in State C.

Using the three-factor formula, each state would calculate the percentage of the business's tax liability that should be apportioned to that state based on the rate of sales, property, and payroll that occur in that state. The specific formula and weights used can vary by state and industry.

So, here, State A might apportion 50% of the tax liability to its operations, State B might apportion 30%, and State C might apportion 20%.

State-Specific Sales and Use Tax

Sales tax is levied on end users and consumers of a product or service and is added to the cost and charged at the time of purchase, while use tax is a self-assessed tax charged from consumers and businesses when they buy a product/service manufactured or procured outside the state boundary. But the products and services we are talking about are usually tangible and crypto assets are intangible assets and therefore solicit some practical questions:

What if I buy a tangible product or service using crypto assets, does that attract Sales and Use tax?

What about digital products like audio files, video files, digital art, and NFTs etc, how do state tax authorities view these transactions from a tax perspective?

And to be honest very few states have come out openly and issued guidelines regarding how sales and use tax will be levied on crypto transactions. Some of the states that have issued clear guidelines on sales and use taxations of crypto are:

You can click on the state and it will take you directly to the state tax authorities’ official website and you can review the sales and use tax guidelines yourself for every state.

Here are some of the US states where crypto transactions are exempt from sales and use tax:

  • New Hampshire
  • Oregon
  • Montana 
  • Alaska
  • Delaware

Let’s visit some sales and use tax guidelines for some tax in a little more detail to make things clearer.

Kentucky State Crypto Sales and Use Tax

The sale of cryptocurrency is generally not subject to Kentucky sales tax. This is because Kentucky law only imposes a sales tax on the sale of tangible personal property, and cryptocurrency is not considered tangible personal property. Kentucky law requires that individuals and businesses pay use tax on any tangible personal property purchased outside of the state and brought into Kentucky for use, storage, or consumption. This includes cryptocurrency purchased from an out-of-state seller. 

Kentucky offers a sales and uses tax benefit aimed at encouraging the purchase of tangible personal property for constructing, retrofitting, or upgrading commercial cryptocurrency mining facilities. This benefit allows for reimbursement of up to 100% of the sales and uses tax paid on eligible project purchases, serving as an incentive for businesses looking to invest in the industry.

Minnesota State Crypto Sales and Use Tax

Minnesota state levies sales and uses a tax on NFTs because they can be used to digitize real-world tangible assets and facilitate their sale and transfer. With NFTs purchasers can have access to:

  • Digital art
  • Concert tickets
  • Coupons for food and beverages
  • Tangible property such as real estate

California State Crypto Sales and Use Tax

Cryptocurrency transactions do not attract sales and use tax in California because according to the state sales and use tax guidelines, only the sale of tangible personal property attracts sales and use tax, and since crypto is not considered to be tangible personal property, it doesn’t attract any tax liabilities unless a real tangible asset as exchanges hands in the backdrop.

New York State Crypto Sales and Use Tax

  • In New York, using virtual currency to pay for goods or services is treated as a barter transaction.
  • Convertible cryptocurrency is considered intangible property in New York and is not subject to sales tax.
  • However, if a party receives convertible cryptocurrency in exchange for goods or services that are subject to sales tax, they owe sales tax based on the market value of the cryptocurrency at the time of the transaction.
  • If a party trades property or services for convertible cryptocurrency and provides a sales slip, invoice, or receipt, they must separately state the sales tax due in U.S. dollars on the document.

FAQs

1. If I receive cryptocurrency as payment for goods or services, do I need to report it as income on my state tax return?

Yes, if you receive cryptocurrency as payment for goods or services, you generally need to report it as income on your state tax return. In the United States, the Internal Revenue Service (IRS) considers cryptocurrency as property for tax purposes, and any income earned from the sale or exchange of cryptocurrency is generally subject to federal and state income tax.

The value of the cryptocurrency at the time of receipt is used to determine the amount of income you received, and it should be reported on your state tax return accordingly. It's important to keep accurate records of your cryptocurrency transactions to properly report your income and ensure compliance with state tax laws.

2. Can states impose their regulations on cryptocurrency transactions, or is it solely governed by federal law?

Cryptocurrency regulation is a relatively new and evolving area of law, and there is no clear answer as to whether states can impose their regulations on cryptocurrency transactions.

Currently, there is no federal law that specifically regulates cryptocurrencies, but federal agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have issued guidance on the application of existing federal securities and commodities laws to cryptocurrencies.

Many states have taken steps to regulate cryptocurrencies, such as requiring virtual currency businesses to obtain licenses and imposing consumer protection measures. However, the extent to which states can regulate cryptocurrency transactions may depend on whether these regulations conflict with federal laws or implicate interstate commerce.

3. Are there any states that offer tax incentives for cryptocurrency mining facilities?

Yes, some states offer tax incentives for cryptocurrency mining facilities. One example is Kentucky, which provides sales and uses tax incentives for commercial cryptocurrency mining facility purchases. This incentive provides up to 100% of the sales and uses tax paid on purchases of tangible personal property to construct, retrofit, or upgrade an eligible project.

Other states like Texas and Wyoming, have also introduced legislation to attract cryptocurrency mining operations by offering tax incentives, low energy costs, and other benefits.

4. Is cryptocurrency subject to sales tax in all states?

No, cryptocurrency is not subject to sales tax in all states in the United States. The tax treatment of cryptocurrency transactions varies by state, and some states have issued guidance on sales and use tax laws.

For example, New York State treats cryptocurrency as intangible property, and the purchase or use of the intangible property is not subject to sales tax. However, if the party that gives cryptocurrency in trade receives in exchange goods or services that are subject to sales tax, that party may owe sales tax based on the market value of the cryptocurrency at the time of the transaction, converted to U.S. dollars.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Ultimate Global Crypto Tax Guide 2023

Does crypto taxes intimidate you? Don’t worry we got you covered. Here is the Ultimate global crypto tax guide for 2023 that will teach you everything about crypto taxes.

“How to file my crypto taxes?”

This question haunts every crypto investor in the world, and here are 3 reasons why:

  1. Taxes are complicated
  2. Getting your taxes wrong may attract legal trouble
  3. Tax professionals charge a lot of money to help you file taxes

We aim to offer you a comprehensive crypto tax guide with this article, addressing all your issues. To make things easier for you, we have compiled a list of every crypto tax guide we have created thus far. This way, you won't have to search our website for the tax guide specific to your country.

The extract provides a comprehensive list of tax guides, each accompanied by a link to the original tax guide. These resources cover numerous topics like capital gains taxes, income taxes, DeFi taxes, mining taxes, and tax-filing tutorials. No matter where you live or the type of crypto transactions you engage in, this guide has everything you need to file your crypto taxes. 

Note that this article has a non-exhaustive list. We are currently developing tax guides for multiple countries and will upload them on our website soon. Therefore, we suggest you keep revisiting this guide if you can’t find your country on the list.

Here’s a list of country-wise crypto tax guides that you can find on our website:

Listed below are tax guides for 16 different countries:

  1. Norway Crypto Tax Guide 2023
  2. Sweden Crypto Tax Guide 2023
  3. Denmark Crypto Tax Guide 2023
  4. Germany Crypto Tax Guide 2023
  5. Finland Crypto Tax Guide 2023
  6. Italy Crypto Tax Guide 2023
  7. Austria Crypto Tax Guide 2023
  8. US Crypto Tax Guide 2023
  9. Canada Crypto Tax Guide 2023
  10. New Zealand Crypto Tax Guide 2023
  11. Australia Crypto Tax Guide 2023
  12. UK Crypto Tax Guide 2023
  13. Spain Crypto Tax Guide 2023
  14. Netherlands Crypto Tax Guide 2023
  15. India Crypto Tax Guide 2023
  16. Portugal Crypto Tax Guide 2023

Nation-Wise Crypto Tax Guides 

Listed below are tax guides for 16 different countries:

  1. Norway Crypto Tax Guide

In Norway, cryptocurrency is treated as a capital asset for tax purposes, not as a currency. Profit from selling cryptocurrency is considered a capital gain by tax authorities, but there’s no specific capital gains tax in Norway. Instead, any profits are subject to income tax. Note that keeping accurate records and reporting transactions on your tax return is essential to avoid legal and financial issues with the tax authorities.

Norway Crypto Tax Guide 2023

  1. Sweden Crypto Tax Guide

According to the Swedish tax authority, Skatteverket, Bitcoin and other cryptocurrencies are not considered currency. Instead, they are classified as property and any sale or disposal of these crypto assets results in capital gains tax in Sweden. Skatteverket categorizes cryptocurrencies such as Bitcoin and altcoins as "other assets," subject to taxation under Chapter 52 of the Swedish Income Tax Act.

Sweden Crypto Tax Guide 2023

  1. Denmark Crypto Tax Guide

In Denmark, Skattestyrelsen, considers cryptocurrency as a personal asset, not a fiat currency, for tax purposes. Personal assets are subject to taxation in Denmark in two situations - if they are related to your business or if they are deemed speculative. It's important to note that simply holding onto your crypto assets (known as HODLing) does not exempt you from taxes. 

The Danish tax authorities view these holdings as speculative and, therefore, subject to taxes. Attempting to evade crypto taxes by holding onto your assets could result in an unwelcome surprise from the tax authorities in Denmark. 

Denmark Crypto Tax Guide 2023

  1. Germany Crypto Tax Guide

The Federal Ministry of Finance, or Bundesfinanzministeriums (BMF) in Germany, has established guidelines regarding cryptocurrencies. The guidelines state that all cryptocurrencies are digital representations of value, not issued or guaranteed by any central bank or public authority. 

Therefore, tax authorities don’t recognize crypto as a legal tender or currency. Instead, they are considered private assets for tax purposes. It's important to note that any profits from selling or disposing of your crypto assets are subject to capital gains tax in Germany.

Germany Crypto Tax Guide 2023

  1. Finland Crypto Tax Guide

The Finnish Tax Administration, Verohallinto or Vero, categorizes cryptocurrencies as personal assets rather than fiat currencies. Cryptocurrencies are defined as units of digital value that can be electronically transferred, saved, and exchanged, without being issued by any central bank or public authority.

In Finland, the purchase and transfer of cryptocurrencies between wallets and exchanges are not taxed. However, any profits made from selling or exchanging them are subject to Capital Gains Tax and are considered capital income.

Finland Crypto Tax Guide 2023

  1. Italy Crypto Tax Guide

Before December 2022, the Italian revenue agency, Agenzia Entrate, did not have a clear taxation framework for cryptocurrencies. Crypto taxation was governed by a small set of regulations that did not consider crypto as a speculative asset and crypto gains were tax-free. 

However, if the value of your crypto portfolio exceeds €51,645 for seven consecutive days in a tax year, your gains would be taxable at a flat rate of 26%. In December 2022, the Italian Senate established new tax regulations for cryptocurrencies as part of the budget legislation. Under the new rules, any gains worth €2,000 or more will be subject to a flat tax rate of 26%

Italy Crypto Tax Guide 2023

  1. Austria Crypto Tax Guide

Prior to March 1, 2022, Austria didn't impose a separate capital gains tax on crypto investments. Instead, they were taxed under the existing income tax laws. Investors were taxed at their respective income tax rates for short-term gains, and any assets held for over a year were tax-free. 

Assets purchased before February 28, 2022, were not taxable under the old rules. However, with the new tax reform, short-term gains are now subject to a flat stock tax rate of 27.5%, and long-term gains are no longer tax-free, except for assets purchased before the cutoff date, which are considered legacy holdings.

Austria Crypto Tax Guide 2023

  1. US Crypto Tax Guide

The IRS considers cryptocurrency to be a virtual currency and categorizes it as 'property' for tax purposes. Virtual currency is a digital representation of value used as a medium of exchange, a unit of account, and a store of value, but not recognized as a representation of the U.S. dollar or foreign currency. In 2014, the IRS issued Notice 2014-21 to clarify that virtual currency is considered property for tax purposes.

If you engage in cryptocurrency transactions, you may be liable for either Income Tax or Capital Gains Tax depending on the type of transaction.

US Crypto Tax Guide 2023

  1. Canada Crypto Tax Guide

In Canada, crypto assets are classified as property for tax purposes, not as a currency. Therefore, any profits made from selling these assets are considered capital gains and are subject to capital gains tax. The Canadian tax authorities view several transactions as disposals, including selling crypto for fiat, gifting crypto, purchasing goods or services with crypto, and exchanging crypto for other assets.

However, not all capital gains are subject to tax. According to the CRA, taxpayers are only required to pay taxes on 50% of their gains.

Canada Crypto Tax Guide 2023

  1. New Zealand Crypto Tax Guide

As per New Zealand's laws, Bitcoin and other blockchain-based assets are not recognized as legal tender and are not considered a currency. The country's tax authority, the IRD, treats them as property for tax purposes. There are no specific laws governing crypto taxation currently, but the IRD has issued guidelines to help taxpayers comply with existing income tax laws. However, new legislation is being discussed that could lead to a more concrete tax regime.

The IRD guidelines state that if you acquire crypto assets intending to dispose of them, any profit you make will be subject to income tax. For instance, if you purchase or mine crypto assets to sell or exchange them, you will need to pay income tax on any gains you make. If you incur a loss when you sell your crypto assets, you may be able to claim that loss.

New Zealand Crypto Tax Guide 2023

  1. Australia Crypto Tax Guide

The ATO does not recognize Bitcoin and other cryptocurrencies as legal tender or currency. Instead, they classify them as property, which means that selling or disposing of them is subject to capital gains tax. The ATO also uses the term "cryptocurrencies" to group Bitcoin, altcoins, NFTs, and similar assets. Therefore, any profits earned from selling or exchanging these assets are subject to taxation.

However, there are some instances where the ATO may classify crypto as income and tax it accordingly. It's important to note that tax rules differ between traders and investors in Australia. Typically, traders pay income tax, while investors owe capital gains tax.

Australia Crypto Tax Guide 2023

  1. UK Crypto Tax Guide

As per HMRC, crypto assets are classified as capital assets, and their disposal results in a capital gain. The following activities are deemed as the disposal of a crypto asset:

  • Selling a crypto asset
  • Buying goods or services with a crypto asset
  • Swapping one token for another
  • Gifting crypto to someone other than your spouse or civil partner

It’s imperative to note that HMRC doesn't differentiate between long-term and short-term capital gains tax. The classification is based on the taxpayer's income level.

UK Crypto Tax Guide 2023

  1. Spanish Crypto Tax Guide

The Spanish tax authority, Agencia Tributaria, classifies Bitcoin and other crypto assets as digital representations of value that are not considered currency or money as they are not backed by a central bank or public authority. Nevertheless, they are accepted as a medium of exchange that can be electronically transferred, stored, or traded.

Agencia Tributaria's latest guidelines state that capital gains or losses from the sale of cryptocurrencies are treated as savings income for tax purposes. This means that any profits made from disposing of crypto assets will be subject to taxation, whether you receive fiat currency or another cryptocurrency in return.

Spain Crypto Tax Guide 2023

  1. Netherlands Crypto Tax Guide

The Netherlands has a unique tax rule where residents are required to report the value of their crypto assets on January 1st of every year, even if they don't dispose of them within the tax year. The cost basis of the assets is equal to their market value on that day, which resets every year. 

The tax authorities use this value to calculate the presumed gains over a financial year, and taxes must be paid on these gains regardless of whether the assets are disposed of or not. Crypto assets are in the third tax category, and the tax levied on Box 3 gains is called Vermogensrendementsheffing, which is equivalent to the capital gains tax charged in other countries.

Netherlands Crypto Tax Guide 2023

  1. India Crypto Tax Guide

The Indian government has recently amended its Income Tax Act, introducing Section 2(47A) during the 2022 Budget session. This section defines Virtual Digital Assets (VDAs) and covers all types of crypto assets, including cryptocurrencies, NFTs, and tokens.

According to the Indian Income Tax Department (ITD), disposing of or earning crypto, including through airdrops or staking rewards, requires payment of crypto taxes in India. Holding crypto for the long term does not offer any tax benefit, and taxes must be paid regardless of the holding period. Furthermore, the transfer of crypto assets on or after July 1, 2022, may also attract an additional Tax at Source (TDS) under Section 2(47A) and Section 194S.

India Crypto Tax Guide 2023

  1. Portugal Crypto Tax Guide

To align with the European Union directive on Markets in Crypto-assets, Portugal has introduced changes to its budget that define crypto-assets as any digital representation of value or rights that can be transferred electronically or stored using distributed ledger technology. This new definition excludes single crypto and non-fungible tokens. 

Consequently, crypto assets are now taxable in Portugal, and all gains from the sale of these assets will be subject to capital gains tax. Any income generated from crypto assets will be regarded as business income and will be taxed accordingly. These changes are effective from this financial year.

Portugal Crypto Tax Guide 2023

The pace of evolution in the crypto space has been unprecedented, with the adoption of blockchain-based financial frameworks like DeFi providing investors with multiple investment avenues beyond crypto tokens. However, this has resulted in complex taxation rules around transactions in the crypto space, including mining, trading, staking, and lending. 

In this article, we aim to provide a general overview of how tax authorities around the world approach the taxation of these types of transactions. So, read on to gain an in-depth understanding of these terms.

Taxes on Crypto Trading

Crypto trading can be primarily divided into two parts based on the nature of the transactions:

  1. Trading crypto for fiat currency
  2. Trading crypto for other crypto tokens

Most countries treat cryptocurrencies as capital assets rather than currency, which means that disposing of them usually results in capital gains tax. This applies when trading cryptocurrencies for fiat currency. However, there are variations in taxation when it comes to trading one crypto for another. For example, some countries, such as Canada, Australia, and the US, treat it as a disposal or change of ownership of assets, while others do not tax such transactions. 

It is important to note that countries have different tax rules for traders and investors, such as Australia, which has separate tax regulations for each group. For specific information on cryptocurrency trading taxation in different countries, please refer to our country-wise tax guides

Taxes on NFT Transactions

There are varying approaches to NFT taxation across countries, and it remains a grey area for many tax authorities. In the US, NFTs are often considered collectables and subject to a higher capital gains tax rate of 28% compared to the standard 20%. In contrast, New Zealand does not tax NFT transactions if they are solely for recreational purposes, provided that the taxpayer can prove their intent when filing taxes. 

In Canada, creating and selling NFTs is treated as business income and subject to income tax instead of capital gains tax. For more information on the taxation of NFTs in different countries, refer to our comprehensive tax guides.

Let’s consider an example to better understand this scenario:

John, who is a US resident, buys an NFT for $2,000 and sells it for $10,000 after holding it for over a year, making a profit of $8,000. Joanna, a UK resident, buys an NFT for £1,500 and sells it for £10,000, making a profit of £8,500, and Jack, a Canadian resident, buys an NFT for CAD 3,000 and sells it for CAD 10,000, making a profit of CAD 7,000.

Since John held his NFT for more than one year, his NFT will be deemed collectable by the IRS and will be taxed at a higher rate of 28%. So John now owes $2,240 to the IRS in NFT taxes.

Joanna on the other hand has to clarify whether the transaction was one of many transactions in which case the gains will be taxed as income, or if it was a normal transaction which attracts a CGT. Since Joanna was involved in only a single transaction, she will pay a CGT. She made a total gain of £8,500, which happens to be less than £50,270, so a tax rate of 10% will be levied on the capital gains, and Joanna owes a total of £850 to the HMRC.

Jack’s income will be taxed as a capital gain in Canada, and since the capital gains lie in the lowest tax bracket, a 15% tax will be levied on 50% of his capital gains because you only pay tax on half of your net profit every financial year in Canada. So Jack’s tax liability comes down to 575 CAD.

Taxes on Crypto Staking and Lending

Crypto staking and lending are DeFi transactions and since most countries are yet to release concrete guidelines around the taxation of DeFi, it is quite a tricky task to figure out how are lending and staking transactions viewed from a tax perspective. 

Some countries like the US and Sweden consider lending to be an income-bearing transaction and tax any interest earned through these transactions as additional income. Staking on the other hand is a bit more complicated, while some countries prefer taxing the staking rewards as additional income, others consider staking as a form of disposal and subject it to capital gains tax. Canada treats NFT transactions in the same way as any other crypto transaction. You can refer to our detailed tax guides to learn more about nation-specific guidelines on DeFi taxation.

Taxes on Mining Crypto 

Countries such as the US, Sweden, and New Zealand consider mining rewards as income, with the cost basis equal to the fair market value of tokens at the time of receipt. The tokens are taxed as income when received, and if you decide to sell them later, a capital gains tax is levied.

In Australia, mining is treated as a hobby unless it is part of a profit-making scheme. Tokens received from hobby mining are considered a capital acquisition and are not subject to income tax upon receipt. However, a capital gains tax must be paid when selling these tokens. You can refer to our detailed tax guides for more information on crypto mining taxation.

Let’s consider an example to better understand how mining transactions are taxed.

Let’s say, Michael received 5 bitcoins as a mining reward valued at $30,000 each. Now, Michael decided to let these tokens sit in his wallet for the next 14 months. Since mining rewards are subjected to both income tax and capital gains tax in the US, Michael is required to report the mining rewards as ordinary income on his tax return for 2022, which will be taxed according to his income tax bracket. 

The total reported income would be $1,50,000, and it would be taxed at a 24% tax rate based on the federal income tax brackets. So Michael now owes $36,000 as income tax to the IRS. Suppose Michael decides to dispose of his Bitcoin at $40,000 per Bitcoin after 14 months, realising a capital gain of $10,000 per coin, a total gain of $50,000 which will now be subjected to a long-term capital gains tax. A 15% tax rate would be levied on Michael’s gains since his gains lie in the first tax bracket. Michael now owes another $7,500 in CGT to the IRS.

If Michael were a Canadian resident, his mining rewards would attract no income tax since the transaction wasn’t carried out in a business setting but in an individual capacity. He has to only pay a CGT on half of his gains upon disposal. Michael’s gains fall into the second tax bracket and therefore attract a tax rate of 20.5%. So now Michael owes a total of $5,125 to the CRA. 

Crypto Gifts and Donation Tax

Crypto gifts and donations are a tax-efficient way for investors to give back, as they do not attract tax liabilities in most countries and are even considered tax-deductible in some, like the US and New Zealand. However, countries with gift tax exemptions usually have a limit. For instance, in the US, every individual is allowed a $16,000 gift tax exemption ($17,000 for 2023), and a lifetime gift tax exemption limit of $12.06 million ($12.92 million for 2023). 

Similarly, in New Zealand, you can claim up to one-third of your donations made to a registered charity as a deduction, provided that you have made an income in the tax year. In Sweden, all crypto gifts and donations are tax-free, with no limit on their value. However, Australian residents should be aware that crypto gifts and donations are considered as a disposal of crypto assets by the ATO and are subject to capital gains tax.

Crypto Margin Trades, Futures, and CFDs

Taxation of crypto margin trades, futures, and other CFDs varies across countries. While countries like the US have straightforward tax rules, other countries like Canada have a more complex tax structure where investors and day traders are taxed differently. In the US, gains from margin/future trades and other CFDs are subject to capital gains tax laws. In contrast, in Canada, if you are considered an investor by the tax authorities, you pay capital gains tax on gains made from such transactions. However, if you are a day trader, your gains are taxed under income tax laws.

As clear guidelines on the taxation of such transactions are yet to be provided in countries like Canada, it is advisable to consult a tax professional before filing crypto taxes. For more insights on the taxation of such transactions, you can refer to our country-specific tax guides.

Conclusion:

We hope you found this ultimate tax guide helpful and that crypto taxes aren’t as intimidating as they used to be for you. We will add more tax guides consistently, so don’t get discouraged if you can’t find your country’s tax guide here. 

We suggest you keep revisiting this blog, as it will be constantly updated to accommodate any new guidelines, laws, or taxation rules issued by the respective tax authorities of the above-listed countries. If you still have some thoughts or reservations regarding filing your crypto taxes yourself, you can simply use Kryptos to file your taxes to ensure that your tax reports are correct and legally compliant.

FAQs

1. Do I need to Pay Taxes on Crypto Transactions?

Yes, in most countries, including the United States, cryptocurrency transactions are subject to taxation. The tax treatment of cryptocurrencies varies depending on the country and jurisdiction, so it is important to check with your local tax authorities to determine your tax obligations. In general, the IRS treats cryptocurrencies as property, so any gains or losses from their sale or exchange may be subject to capital gains tax.

2. What Happens if I don’t pay my crypto taxes?

If you don't pay your crypto taxes, you may face penalties and interest charges, just like with any other tax obligation. For instance in Sweden, cryptocurrencies are considered as assets and are subject to capital gains tax. Failing to report and pay taxes on cryptocurrency gains can lead to criminal charges, fines, and even imprisonment. In the United States, the IRS has been actively enforcing crypto tax compliance, and failure to pay taxes on cryptocurrency transactions can result in fines, liens, or even criminal charges in extreme cases.

3. Are there any tax exemptions or deductions on crypto transactions?

There may be tax exemptions or deductions available for cryptocurrency transactions, but it depends on the country and jurisdiction in which you are located. In the United States, for example, cryptocurrency donations to qualified charitable organizations may be tax-deductible, and losses from cryptocurrency transactions can be used to offset capital gains and reduce your overall tax liability.

4. How to file crypto taxes using Kryptos?

We agree that filing your crypto taxes is an unreasonably complicated task, even for someone with a fair amount of prior knowledge. However, there’s an easy way to file your crypto taxes using a crypto tax software called Kryptos.

All you need to do is log in on the platform, add all your trading accounts, wallets, and DeFi accounts and sip coffee while Kryptos does all the heavy lifting. The platform can auto-fetch all your transaction from the tax year and generate a legally compliant tax report within minutes while suggesting ways to lower your tax bill. It works like magic all you need to do is try it once.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Claiming Tax Losses on Worthless Crypto

Do you have worthless crypto in your portfolio and you don’t know how to get rid of them? If the answer is yes, then you’re lucky because you can claim a tax loss on them. Here’s how.

Are you one of the many crypto investors who suffered significant losses in the past year? Perhaps you invested in Bitcoin or Ethereum, only to see your holdings plummet in value. Or maybe you tried your hand at some altcoins that have since become virtually worthless. Whatever your situation, you may be wondering if there is any way to recoup your losses when tax season rolls around the corner.

Fortunately, there is a way you can claim tax losses on worthless crypto - but it's not as straightforward as you might think. In this blog post, we'll explore the ins and outs of claiming losses on “worthless crypto”. We'll examine the IRS Chief Council Memorandum 202302011, which outlines the circumstances under which you can take this step, and offer some tips for making the most of these tax deductions.

Whether you're a seasoned crypto investor or a newcomer to the scene, read on to learn more about how to minimize your tax burden and potentially recoup some of your losses.

Decoding the IRS's Recent Memorandum

As per the recent IRS memorandum discussed in the introduction, if you buy a crypto and its value goes down significantly, you might be able to get tax deductions for the capital loss.

Here's an example to help understand it better. Let's say someone named Sarah bought some Crypto A for $1.50 per unit in 2022 for her personal investment on a crypto exchange. But by the end of the year, the value of each unit had gone down to one cent.

Even though Sarah could still sell, exchange, or transfer the crypto on at least one exchange, she didn't get rid of them or abandon them in 2022. Because of this, the IRS considers that Sarah didn't actually lose anything under Section 165(a), so she can't claim a loss on her taxes.

To put it simply, if you buy crypto and its value goes down, you may be eligible for tax deductions for the loss. However, to claim these deductions, you must dispose of or abandon the crypto. If you don't take any action to get rid of it, you won't be able to claim the loss on your taxes.

Deductions on Worthless Crypto

The IRS memo doesn't give explicit instructions on how to claim deductions for crypto that have lost significant value or become worthless, but there are general tax rules according to IRC Section 165(G) that allow you to report a capital loss as long as you dispose of the crypto properly, and there is at least one market where it has liquidity.

For instance, you invested $500 in a new crypto called "Mooncoin" in 2021, and it grew in value to $50,000 by mid-2022. However, by the end of 2022, its value had plummeted to just 50 cents. If you sell Mooncoin on a market where it has liquidity for 50 cents, you can claim a capital loss of $499.50.

But just holding onto the Mooncoin and considering it worthless doesn't count as a loss for tax purposes. You must also remember to claim your capital loss deductions, you need to meet two requirements:

  1. The loss must occur during the tax year that you're filing for. In simpler terms, you can only claim the loss if it happened within the same year as your tax filing.
  2. The loss must be directly evidenced by closed and completed transactions, fixed by identifiable events. This means that you must be able to show that the loss happened due to a specific event, rather than something more general.

How To Claim Tax Loss On Worthless or Abandoned Crypto?

Here’s a step-by-step method to claim your tax losses on worthless or abandoned crypto.

Step 1: Determine the Cost Basis of Your Crypto

The cost basis is the original value of the crypto when you acquired it. You will need to determine the cost basis of your crypto in order to calculate your losses. If you acquired the crypto through a purchase, the cost basis is the purchase price. If you acquired the crypto through mining or other means, the cost basis is the fair market value at the time of acquisition.

Step 2: Determine the Fair Market Value of Your Crypto

You will also need to determine the fair market value of your crypto at the time it became worthless or was abandoned. This is the amount that the crypto would have sold for if it were sold on the open market at that time.

Step 3: Calculate Your Loss

To calculate your loss, subtract the fair market value of the crypto at the time it became worthless or was abandoned from the cost basis of the crypto. If the result is a negative number, you have a loss.

Step 4: Complete IRS Form 8949

You will need to report your loss on IRS Form 8949, which is used to report sales and exchanges of capital assets. You will need to complete Part I of the form, which asks for information about the asset that was sold or exchanged, including the date acquired, the date sold or exchanged, the sales price, and the cost basis. You will also need to report the amount of the loss on the form.

Step 5: File Your Tax Return

You will need to file your tax return and include a copy of IRS Form 8949 with your return. Make sure to include all other required forms and schedules with your return as well.

It's important to note that the IRS treats crypto as property for tax purposes, so losses on crypto are treated the same as losses on other types of property. Also, it's always a good idea to consult with a tax professional if you have any questions about how to report your losses on your tax return.

FAQ

1. Can I deduct losses from my crypto on my tax return?

Yes, you can deduct losses for crypto on your tax return. If you purchase cryptocurrency and subsequently experience a significant decrease in its value, you may qualify for a tax deduction in relation to the loss incurred. However, to claim such a deduction, it is necessary to dispose of or abandon the cryptocurrency. Failure to take action in this regard will result in disqualification for the deduction on your tax return.

2. Are there any requirements for deducting a loss from my crypto?

If you wish to claim deductions for losses on your taxes, you must keep these two avenues in mind: 

a. All transactions must be incurred within the current year and 

b. They must be traceable to a distinct and identifiable event that has concluded or been resolved. 

In simpler terms, you can only deduct losses if they are clearly linked to a specific event and have taken place during the current tax year

3. What IRS may ask to prove for abandoned crypto loss claims?

Abandonment of property is proved by examining the context and conditions surrounding the situation, which should demonstrate a two-fold factor: 

a. the intention to abandon the property, and

b. an affirmative act of abandonment.

An affirmative act refers to a deliberate action taken by the taxpayer to discard the property entirely. Mere intention or non-use of the property does not suffice as proof of abandonment. It is necessary to provide clear and explicit evidence of abandonment

4. Are there any limitations on the amount of losses I can deduct from my crypto?

According to Section 1211 of the Internal Revenue Code, there's a limit to the number of losses you can deduct each year. For individuals, the cap is $3,000, and $1,500 for married couples filing separately.

But don't worry, there's still hope for those who have losses exceeding this limit. Section 1212 allows taxpayers to carry forward these excess losses to future tax years. So keep track of your cryptocurrency transactions and losses, as accurate record-keeping is essential to properly report capital gains and losses on your tax returns.

5. Can I offset worthless or abandoned crypto against capital gains?

Yes, according to the IRS, if you sustain a loss due to the abandonment of a cryptocurrency, it would be treated as a capital loss under I.R.C. Section 165(a). This means that you can use the loss to offset capital gains, but not other types of income.

It's important to note that in order to claim a loss on abandoned cryptocurrency, you must be able to prove that the crypto has become completely worthless and that you have no hope of recovering any value from it in the future. Additionally, you should consult a tax professional for guidance on how to properly report these losses on your tax return.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Crypto Gambling Tax: Understanding the Rules of the Game

Understand crypto gambling and its tax rules in Germany with our detailed guide. Learn about tax compliance, and how to calculate and report taxes on your crypto gains.

As more online casinos and betting platforms accept cryptocurrencies, the crypto gambling industry is flourishing. But it’s important to understand the tax implications of these transactions to avoid last-minute tax burdens.

This article breaks down everything you need to know about crypto gambling taxes and how to report your crypto gains in Germany.

What is Crypto Gambling?

Crypto gambling allows you to place bets online using cryptocurrencies. This digital mode of wagering is gaining traction due to its immersive casino experience minus the geographical constraints. 

Hundreds of online gambling sites are offering players a wide range of betting options and secure transactions – without users having to ever leave their homes.

Is It Illegal?

Crypto gambling is legalized in countries such as Germany, the UK, Canada, and Sweden. However, it is not considered taxable unless it is your primary income source.

In the USA, online gambling is legal except for a few states. Know the legalities of crypto gambling in your state before participating.

How is Crypto Gambling Taxed?

As per IRS, crypto gambling winnings are considered taxable income. If you are a US taxpayer, you have to report your crypto gambling income as "other income" in Form 1040. 

In countries such as Germany, Canada, the UK, and Sweden, you don’t have to pay taxes on your gambling winnings unless it’s your primary source of income.

However, you still need to maintain the records of your gambling transactions. This is because in almost all countries, including jurisdictions which do not tax gambling income, you may incur taxes if you dispose of your crypto rewards.

Whether you realize a gain or loss depends on how the price of your crypto reward changes from the time you first received it. 

Crypto Gambling Winnings Tax Rate

In Germany, cryptocurrency is viewed as a private asset rather than a property. This means it is subject to Income Tax and not Capital Gains Tax.

If you hold your gambling winnings for more than a year before its disposal, you will pay no taxes on your crypto gains.

If you dispose of your crypto reward in less than twelve months, you will pay income tax on the profits you make - up to 45% - plus 5.5% Solidarity Tax. This is applicable if you earn more than €600 per tax year.

Here’s the income tax rate for the financial year 2022:

Here’s the applicable tax rate for short-term gains on crypto (2023):

To learn more about Germany crypto tax, refer to the guide here.

Can You Write Off Crypto Gambling Losses?

If you dispose of your crypto gambling reward within one year and realize a loss, it is not considered taxable. You can use these losses to offset any profits that you have made in a given financial year.

In case you don’t have any profits to offset, you can carry forward your losses to future tax years.

How to Calculate Crypto Gambling Taxes?

To calculate your crypto gambling taxes in Germany, consider the following steps:

  • Determine Cost Basis For Crypto Gambling Taxes: Crypto taxes are calculated using the FIFO method if units cannot be individually identified
  • Use A Crypto Tax Software: Use a crypto tax software like Kryptos to automatically identify taxable transactions and calculate your tax liability.

Which Other Countries Don’t Tax Crypto Gambling Winnings?

Apart from Germany, there are many other countries where crypto gambling winnings are not considered income. This includes:

  • Austria
  • Australia
  • Belgium
  • Bulgaria
  • Canada 
  • Czech Republic
  • Denmark
  • Finland
  • Hungary
  • Italy
  • Luxembourg
  • Malta
  • Romania
  • Sweden
  • United Kingdom 

However, you may still need to pay taxes on any crypto gains that you make by disposing of your gambling rewards. Please consult a tax professional for your specific region.

How To Report Crypto Gambling Taxes?

The Germany tax deadline is on 31st July for each financial year. While your gambling winnings are not taxed in countries like Germany, you may still need to report any short-term crypto gains you make by disposing of your rewards.

Use crypto tax software like Kryptos to keep a record of your transactions and even automatically calculate any applicable taxes. 

Once you have calculated your crypto gambling taxes using the app, you can directly download your tax report and file it on BZSt's online tax platform.

FAQs

1. How is crypto gambling taxed?

In Germany, gambling winnings, including those from crypto gambling, are generally not taxed. This is because they do not fall under the definition of 'income' as per the country's tax laws.

2. What are the advantages of crypto gambling?

Crypto gambling offers multiple advantages including quick and secure transactions, a degree of anonymity. It also allow players to utilize the platforms without geographical restrictions.

3. What are the risks of crypto gambling?

While there are advantages, crypto gambling also comes with its share of risks. Not all crypto gambling sites are regulated, meaning you could potentially fall victim to scams. Also, because transactions are irreversible, if you make a mistake while transferring your crypto, you cannot get it back.

4. What can I do if I was scammed by a crypto gambling site?

If you suspect you've been scammed by a crypto gambling site, the first step is to report the incident to the relevant local authorities. In Germany, you can report to the Federal Criminal Police Office (BKA).

5. Are gambling losses deductible?

If you dispose of your crypto reward within one year and realize a loss, it is not considered taxable. You can use these losses to offset any profits that you have made in a given financial year.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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The Ultimate Guide To Crypto Portfolio Management

Discover the essentials of crypto portfolio management and learn how to leverage crypto accounting software to mitigate risks, and gain maximum returns while saving taxes.

With over 22,932 cryptocurrencies and multiple asset classes, how you are managing your crypto portfolio is crucial for maximum ROI. But unfortunately, many investors ignore this step, preventing them from reaping maximum returns from their assets.

A healthy portfolio ensures your funds are preserved and you can remain invested in the long run. And this applies to both beginners and pro-investor.

In this guide, we’ve covered everything to get you started with your crypto portfolio management and also discussed how to leverage crypto accounting for managing your portfolio effectively.

What Is Crypto Portfolio Management?

Crypto portfolio management is the process of evaluating and calibrating your cryptocurrency investments, aiming to maximize returns while mitigating risk. 

This includes understanding crypto asset classes, selecting the right management style, monitoring market trends, and using appropriate tools to maintain a well-balanced and diversified portfolio.

What Are The Different Types Of Crypto Asset Classes?

To manage your crypto portfolio effectively, it's essential to understand the different types of crypto assets available. 

The most common asset classes include:

Each asset class comes with unique features, risks, and potential rewards. This makes it crucial to diversify your investments across various classes to minimize risk and maximize returns.

Styles of Crypto Portfolio Management

Depending on your financial goals and risk tolerance, you may manage your crypto portfolio using either of the following two styles: Active or Passive.

Let’s look at each of them in detail.

Active Crypto Portfolio Management

This approach involves continuously monitoring market trends, conducting research, and making frequent trades to capitalize on price fluctuations. 

Active managers seek to outperform the market by leveraging short-term trends and adjusting the portfolio for maximum returns. This is a high-risk, high-reward approach as your profits are based on volatile prices which may change in either direction frequently.

Passive Crypto Portfolio Management

Investors following this strategy tend to hold long-term positions in a diversified portfolio. Here, you aim to achieve market returns by minimizing the trading frequency and associated costs.

Instead of trading frequently, you focus on acquiring crypto assets that show promising growth in the long run. This option is better if you are new to the crypto trading space or don’t want to actively manage your portfolio yet gain profits.

How To Manage Your Crypto Portfolio Like A Pro?

Before you get started with your crypto portfolio management, consider the following steps:

To learn about the common crypto accounting mistakes that you should avoid for a strong portfolio, refer here.

Now, here are 5 tips to manage your crypto portfolio like a pro:

Maintain Accurate Records of Your Investments

Tracking your investments allows you to monitor the performance of different assets and your overall portfolio. This information is vital to assess if your investments are meeting your financial goals or if any adjustments are required.

It also ensures that you report your crypto activity correctly and avoid potential penalties from tax authorities. 

Keep accurate records of your investments using the following steps:

  • Use a crypto accounting tool to track your crypto investments from multiple exchanges.
  • Regularly update any new transactions. You can also use an app like Kryptos to auto-sync all your crypto transactions in one place.

Diversify Your Crypto Portfolio

Diversification is a key strategy for managing risk and enhancing the potential for returns in your crypto portfolio. 

The logic is simple: by investing in a variety of asset classes, you spread the risk across multiple investments, reducing the impact of underperformance in any single asset.

For example, imagine you have invested solely in Solana (SOL), and its value takes a sudden plunge due to unfavourable market conditions. Your entire portfolio would suffer a significant loss. 

However, if you had diversified your investments across various cryptocurrencies and other asset classes, such as stablecoins, the negative impact on your overall portfolio would be lessened. This is because the other assets might perform well or remain stable, even when SOL’s value declines.

Monitor Market Trends

This knowledge enables you to make strategic decisions about your investments, ensuring your portfolio remains agile and competitive. 

To stay up to date in the crypto space, you can subscribe to popular crypto news outlets or join online communities. This is especially beneficial if you are trading and managing your crypto portfolio actively.

Make Changes & Keep an Exit Strategy

The future of your investments is not certain. Be prepared to make changes based on market conditions, new information, or shifting investment goals. 

For instance, if you learn about an upcoming development in a particular cryptocurrency, you may want to adjust your holdings accordingly.

You must also be clear about when you want to exit and take your profit or cut losses. This helps you manage your expectations and saves you from impulsive decisions.

Use Portfolio Tracking and Analysis Tools

Choosing the right tools can make managing your crypto portfolio seamless. Imagine having a virtual assistant that keeps all your crypto data organized, making it easier to stay on top of your investments and make informed decisions. 

Some software also calculates the tax implications of your crypto assets to help you stay legally compliant while enjoying maximum profits.

When selecting a management tool, consider one with the following capabilities:

  • Accurate, real-time data and analytics: Choose a portfolio tracking software that keeps all your investment information up-to-date to make well-informed decisions.
  • Integration with multiple exchanges: Having a tool that consolidates data from various exchanges provides a holistic view of your investments, making it easier to manage your portfolio effectively.
  • Comprehensive tracking of your portfolio's performance: A regularly updated portfolio will enable you to quickly identify trends and areas for improvement.
  • Streamlined tax reporting and compliance features: A good portfolio management tool simplifies crypto taxes, ensuring you meet all regulatory obligations.

The Best Crypto Portfolio Management App

A powerful crypto portfolio management app can make your life as an investor a lot easier – from managing all your assets in one place to finding its tax implications and maximizing savings. 

The easiest way to start is to use Kryptos, a cutting-edge crypto portfolio management app designed to simplify the entire process for investors. Its intuitive interface, robust analytics, and wide range of integrations make it an ideal choice for both active and passive investors. 

All you have to do is add your wallet to the app, and it auto-syncs real-time data of all your assets for you. 

You can easily manage your portfolio including NFTs and DeFi from their dashboard and calculate your capital gains, claim losses, and know your tax liability. To get started, Sign Up Now.

FAQs

1. What role does crypto accounting play in risk management for crypto portfolios?

Crypto accounting provides investors with accurate, up-to-date information about their investments. By tracking and analyzing these transactions, and their tax implications, investors can identify potential risks, assess their exposure, and make informed decisions to rebalance their portfolios and mitigate risk.

2. What is the role of crypto accounting in Portfolio Management?

Crypto accounting helps investors track, analyze, and optimize their cryptocurrency investments. With accurate data on transactions, performance, and tax implications, investors can make well-informed decisions, adjust their portfolios as needed, and ensure compliance with tax regulations.

3. What is a Cryptocurrency Portfolio?

A cryptocurrency portfolio is a collection of various crypto assets, including cryptocurrencies, utility tokens, security tokens, stablecoins, and non-fungible tokens (NFTs), owned by an individual or organization. A well-managed crypto portfolio aims to achieve specific financial goals while minimizing risk through diversification and strategic investment decisions.

4. What is Portfolio Management?

Portfolio management is the process of selecting, monitoring, and optimizing a collection of investments to achieve financial objectives while managing risk. This involves understanding asset classes, selecting appropriate management styles, monitoring market trends, and utilizing effective tools to maintain a well-balanced and diversified portfolio.

5. How does crypto accounting impact traditional portfolio management practices?

Investors must track and account for transactions, tax implications, and the performance of various crypto assets while dealing with the volatile crypto market. By incorporating crypto accounting into their portfolio management, investors can optimize this process, make informed decisions, and ensure tax compliance.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Kryptos Goes Live On Arbitrum, Simplifies Crypto Taxes For The Layer-2 Solution

Simplify crypto taxes for Arbitrum with Kryptos's integration. Effortlessly manage taxable assets across 400+ DeFi/NFT projects. Sign up now!

We are excited to announce that Kryptos, a portfolio tracking and crypto tax software is now available for Arbitrum – One and Nova. As the app goes live on the network, it's set to transform how users currently deal with Arbitrum taxes and boost further crypto adoption.

About Arbitrum One

Arbitrum One is a leading Ethereum Layer-2 scaling solution developed by Offchain Labs. An Optimistic Rollup, Arbitrum One provides ultra-fast, low-cost transactions with security derived from Ethereum. 

Launched in August 2021, the Arbitrum One mainnet beta is EVM-compatible to the bytecode level and has 65%+ TVL in the L2 segment. 400+ DeFi and NFT projects are live in the ecosystem to date. In August 2022, Arbitrum One upgraded to Nitro tech stack, enabling fraud proofs over the core engine of Geth compiled to WASM. 

About Arbitrum Nova

An AnyTrust solution, Arbitrum Nova is a Ethereum Layer-2 scaling solution ideal for gaming, metaverse and socialfi projects, enabling instant confirmation and <$0.01 transactions with minimal trust assumptions. Since August 2022, Arbitrum Nova has been the home for Reddit community token holders from r/Cryptocurrency and r/FortniteBR.

And now with Kryptos, managing your taxable digital assets across these 400+ DeFi and NFT projects live on Arbitrum has never been easier.

Why Kryptos?

There were up to 83.4 million registered blockchain wallets in 2022 with more than 247,968 transactions every day. With so many crypto transactions happening around the world, taxes still remain a grey area.

Kryptos’s fast, simple, and reliable crypto tax solution to overcome this hurdle. The app empowers crypto users with the necessary tools to easily manage their assets and sort all the legal compliances.

The crypto tax software serves crypto investors, enterprises, and public institutions with a wide range of integrations – supporting more than 2000+ DeFi protocols, 50+ Blockchains, 100+ wallets & exchanges, and even NFTs & DeFi protocols. 

So whether one is staking or lending, or if the portfolio includes NFTs or DeFi – the platform allows users to manage all transactions in one place and calculates crypto taxes automatically in minutes. 

“We are so excited to announce our integration with Arbitrum, a powerful layer 2 scaling solution for Ethereum. By integrating our crypto tax software with Arbitrum's wallet, we are enabling crypto users to simplify taxes and leverage tax benefits to enjoy a maximum of their Arbitrum assets. This integration also reflects our commitment to providing up-to-date and reliable tax support for our users." — Sukesh Kumar Tedla, Founder & CEO of Kryptos.

Kryptos Simplifies Crypto Taxes For Arbitrum

Packed with multiple features like auto-detection of transactions and tax-loss harvesting, the crypto tax software optimizes tax savings and ensures users never pay extra. 

Integration Support

Apart from the massive integration support of 1000+ DeFi protocols and over 50+ blockchains, Kryptos allows users to auto-import wallet transactions through Direct API or CSV files.

Portfolio Management

Features like intelligent detection and categorizing of the transactions provide accurate analysis of these transactions, simplifying portfolio management. Users also get dedicated DeFi and NFT dashboards.

Tax Saving

The app comes with inbuilt mechanisms that not just calculate tax liability but also recognize tax-saving events. This helps users save maximum taxes which otherwise may be missed out.

Legal Compliance

Once the wallets are auto-imported, users can access their portfolio and applicable taxes right from their dashboard. The app also allows users to download crypto tax reports that comply with their local country laws.

Crypto taxes are complicated, but not anymore. The Arbitrum integration is live on the Kryptos application and can be easily completed in just a few steps. For further details, refer to our guide here.

If you would like to calculate your crypto taxes, Sign Up on Kryptos now and avoid last-minute tax surprises. 

Key Resources:

Arbitrum Integration Guide

Arbitrum Nova Integration Guide

Crypto Tax Guides For Different Countries

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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10 Best Crypto YouTube Channels To Follow In 2023

Stay updated with the top 10 crypto YouTube channels of 2023 for market insights, trading advice, and educational content.

Whether you are a beginner in the crypto space or an active trader, you are probably turning to the internet for the latest information in this space.

However, with the crypto industry’s rapidly evolving nature and volatility, not all sources of information are helpful. It’s also hard to realize if the information presented is authentic or manipulated for personal benefit.

To make your life easier in this space, we recommend these 10 best crypto YouTube channels that you should follow right away.

Top 10 Crypto YouTube Channels in 2023

Here are our top 10 recommended YouTube channels to follow if you want to stay updated in the crypto space.

Coin Bureau – Crypto Market Analysis & Trading Advice

If you're on the lookout for a crypto YouTube channel that brings together news, market analytics as well as professional trading insights, Coin Bureau is your best bet. With a whopping 2 million plus subscribers, this channel's in-depth research and analysis are often cited by other crypto news platforms.

The channel is the brainchild of Guy, who has been involved in the crypto industry for over 10 years. Guy has a deep understanding of the market, and he provides his audience with valuable insights.

They also have a Telegram channel where you get access to instant insights directly shared by the Coin Bureau team.

Check out the top 10 telegram crypto channels to follow here.

Kryptos – Best For Crypto Taxes

Crypto assets can be exciting until the tax angle enters the picture. But this is where crypto tax software like Kryptos can help you.

As one of the finalists of the Binance Incubator Program 2022 and now backed by Binance themselves, Kryptos is one of the fastest-growing crypto tax software globally. 

If you are a crypto investor or trader, you need to comply with all the laws and regulations. Kryptos takes care of your taxes and generates tax reports in just a few minutes.

While their Youtube channel is still relatively new, it’s the perfect place to learn about crypto taxes and know all the latest updates in the tax space. 

The channel provides clear and concise explanations of the tax laws, and it also offers tips on how to minimize your tax liability. They also share insights on how to share their platform to make it easier for their users.

To follow their channel, click here.

CoinMarketCap – Trusted Source For Crypto Comparisons

CoinMarketCap is one of the most trusted sources for cryptocurrencies globally. It is the world's most-referenced price-tracking website for crypto assets in this rapidly evolving space.

Their YouTube channel offers a wealth of information about different cryptocurrencies, including prices, market capitalization, and technical analysis. So, it’s a great resource for investors who are looking to learn more about the crypto market.

Altcoin Daily – Daily Updates on Crypto, NFTs, and more

With over 1.3 million subscribers, and hosted by two brothers – Aaron and Austin Arnold – Altcoin Daily has become a trusted source for daily updates on the latest altcoin news, price analysis, and project reviews. 

One of the things that set Altcoin Daily apart is its focus on providing timely information. The channel releases new videos every day and covers the latest developments in the crypto market. 

So if you want to stay up-to-date with daily crypto updates, consider subscribing to this channel. 

Benjamin Cowen – Quality Cryptocurrency Education

Benjamin Cowen uses his YouTube channel to provide quality cryptocurrency education for both beginners and experts. 

The channel focuses on technical analysis and provides investors with insights into the crypto market. Benjamin Cowen is from a Science/Engineering background and uses his data analytics skills to derive metrics from all the crypto data available.

He then presents these metrics in a more digestible way to his community. So, if you are looking to learn more about technical analysis without having to sift through a lot of noise, Benjamin Cowen is your guy!

Bitboy Crypto – Latest Crypto News, Project Reviews, & Trading Advice

Bitboy Crypto offers the latest crypto news, project reviews, and trading advice in the most fun way. The channel stands out for its mix of in-depth analysis and entertaining videos.

Hosted by an experienced cryptocurrency enthusiast, Ben Armstrong, BitBoy Crypto has grown to become one of the most popular crypto youtube channels with over 1.4 million subscribers.

99Bitcoins – Best For Crypto Educational Content

If you want to learn about Bitcoin and crypto from scratch, consider subscribing 99Bitcoins. 

The channel provides a comprehensive overview of Bitcoin's history, from its creation to the present day. Their videos are beginner friendly, covering both the basics as well as advanced market topics.

They also share informative crypto news in a more educational way which makes it perfect if you are still new to this space.

Ivan On Tech – Best For Podcasts On Crypto 

Ivan On Tech is a great resource for anyone who’s looking to learn about the crypto market. 

But what sets the channel apart is the way they feature interviews with industry experts to discuss the latest crypto news and analysis of the crypto market. 

The channel is owned by Ivan Liljeqvist who’s an international blockchain speaker and educator himself. He breaks down complex topics into more digestible pieces for his audience.

He also conducts podcasts to discuss industry topics, so if you are someone who prefers that, this channel can be a great resource for you.

Lark Davis – Insights On Crypto Investing

Lark Davis is a New Zealand-based experienced crypto investor who now uses his YouTube channel to share his insights.

From helping his audience to grow their portfolio and earn money to sharing all the important markets, he does it all in a fun and engaging way.

To help beginners understand crypto better, he has also launched his courses and newsletters.

Data Dash – Regular Crypto Market Analysis

Hosted by Nicholas Merten, Data Dash is one of the fastest-growing crypto channels on YouTube. With over eight years of experience in financial markets, Merten’s now sharing his perspective on the crypto market. 

As the name suggests, Merten uses a unique data-driven approach to back his statements and educate his audience about the crypto industry. 

In addition to analysis, the channel also creates educational crypto topics, interviews with industry experts, and much more.

Final Thoughts

The internet is a great resource to learn about the crypto market and make more informed decisions. Our list of the 10 best Youtube channels will help you learn and stay updated about this space. 

However, it's always advisable to Do Your Own Research before making any investment decisions. 

Invested in crypto assets? Don’t forget to track your tax liability in advance to avoid last-minute surprises. Use crypto tax software like Kryptos to auto-sync your transactions and calculate taxes in minutes. 

With the integration support of the leading exchanges, over 1000+ DeFi protocols, and NFTs – Kryptos ensures your legal compliances are always sorted. 

To get started, Sign Up for Free now.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Kryptos Attracts Strategic Investments from Binance Labs and Gate Labs

Kryptos, a leading provider of simplified global crypto tax compliance software, is pleased to announce strategic investments from Binance Labs and Gate Labs.

Kryptos, a leading provider of simplified global crypto tax compliance software, is pleased to announce strategic investments from Binance Labs and Gate Labs. These investments signal a strong vote of confidence in Kryptos's innovative solutions and its mission to simplify crypto tax compliance for individuals, professionals, and enterprises worldwide.

As global crypto adoption continues to rise, the need for specialized taxation tools becomes increasingly evident. According to a 2022 Fidelity report, 58% of institutional investors globally have an active crypto footprint, while 82% of high-net-worth individuals have invested in crypto assets, underlining the growing interest in digital assets. Additionally, Crypto.com reports a remarkable 39% increase in global cryptocurrency owners, reaching 425 million by December 2022. Against this backdrop, the importance of compliance with evolving tax requirements, such as DAC8, CARF, MiCA, and others, cannot be overstated. The tax tool market holds immense potential driven by the growing demand for streamlined tax reporting and the increasing regulatory pressures.

Kryptos, with its comprehensive suite of solutions including accounting, portfolio management, and tax reporting, is uniquely positioned to address the critical need for accurate and efficient tax reporting in the crypto ecosystem. Supporting over 2000+ DeFi protocols, 100+ exchanges and wallets, and 50+ blockchains, Kryptos offers a one-stop-shop solution for all Web3 finance needs.

The investments from Binance Labs, a renowned incubator and supporter of blockchain projects, and Gate Labs further solidify Kryptos's position in the industry. This comes after Kryptos's selection in the Binance Labs Incubation Program in November 2022, which showcased their exceptional potential to transform the crypto tax compliance landscape.

"We are thrilled to have the support of Binance Labs and Gate Labs," said Sukesh Tedla, CEO of Kryptos. "Their investments not only validate the value of our solutions but also enable us to further enhance our platform and expand our reach. With their expertise and backing, we are confident in our ability to simplify crypto tax compliance and drive the adoption of our platform globally."
"Kryptos's commitment to simplifying crypto tax compliance with its user-friendly approach solves a pain point and removes manual compliance duties,” said Alex Odagiu, Investment Director at Binance Labs. "Through our investment, we aim to support Kryptos in their mission and contribute to the growth and adoption of blockchain technology."
"GateLabs is proud to announce an investment partnership with Kryptos. We believe that Kryptos's simplified global crypto tax compliance software will revolutionize the way individuals and enterprises manage their crypto finances, said Investment director at Gate Labs. We are proud to be part of their journey and look forward to their continued success."

About Kryptos

Kryptos simplifies Web3 finance for clients globally with a comprehensive suite of solutions that include accounting, portfolio management, and tax reporting. Supporting over 2000+ DeFi protocols, 100+ exchanges and wallets, and 50+ blockchains, Kryptos is the one-stop-shop for all Web3 finance needs.

With the strategic investments from Binance Labs and Gate Labs, Kryptos is poised for accelerated growth and expanded market reach. The company remains committed to its mission of simplifying crypto tax compliance and delivering exceptional value to its global user base.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Understanding the Tax Implications of Crypto Transactions

Discover tax implications of cryptocurrency transactions in the USA, including income and capital gains tax rates, IRS treatment of NFTs, and reporting guidelines.

If you have initiated crypto transactions over the past year, you may be subject to income tax or capital gains taxes. It is important to know the different tax implications of your transactions to avoid any last-minute surprises and minimize your tax bill. 

In this article, we discuss all the essentials you need to know about crypto taxes and share the right way to report them. 

How Are Cryptocurrency Transactions Taxed?

The IRS considers cryptocurrency as property for tax purposes. This means that crypto transactions are subject to capital gains and losses. 

Just like stocks or real estate, any profit or loss resulting from the sale or exchange of cryptocurrency must be reported on your tax return. Depending on how long you have held your assets before disposal, you may incur short-term or long-term capital gains tax.

If you earn crypto income through any event, for instance, airdrops or mining – you are subject to ordinary income tax.

When Do You Pay Capital Gains Tax on Crypto?

If you earn a profit by disposing of your crypto, you incur capital gains tax. To calculate your capital gains, you need to find your cost basis. It is the amount you spent to acquire the crypto, including fees, commissions and other acquisition costs in U.S. dollars.

Your capital gain or loss is the difference between the crypto disposal value and your cost basis.

Capital gains are taxed differently depending on the holding period, your income bracket, and your filing status. 

  • If you sell your crypto in less than 365 days, you are subject to 10-37% short-term capital gains tax.
  • In case you hold your crypto for more than a year before its disposal, you incur long-term capital gains tax at a rate of 15% or 20%.

When Do You Pay Income Tax on Crypto?

There are also instances when your crypto is subject to ordinary income tax. This includes events such as:

  • Mining cryptocurrencies
  • Receiving crypto as payment
  • Income from staking crypto
  • Yields on crypto accounts
  • Airdrops
  • Hard forks

The amount of crypto income that you recognize is the fair market value of the crypto asset, in U.S. dollars, when received. It is taxed at the Federal Income Tax rate of 10-37% depending on your income bracket and filing status.

Taxable Events For Crypto Transactions

Now that we know how crypto is taxed, let’s discuss some of the taxable crypto transactions in detail.

Mining Cryptocurrency

As per IRS, when you receive a cryptocurrency reward for successfully mining a new block on the blockchain, it is considered taxable income. 

Your income will be the fair market value of the crypto, in U.S. dollars, when you received it. This is subject to ordinary income tax at a rate of 10-37% and has to be reported. 

Selling Crypto for Fiat Currency

If you sell your crypto for fiat such as converting Bitcoin to Cash, any profit or loss that you make is your capital gains or capital loss and it is taxable.

To find out your capital gains tax, you have to calculate your cost basis. If the selling price is more than your basis, you incur either short-term capital gains tax or long-term capital gains tax depending on your holding period.

If the selling price is lesser than the cost basis, you realize a capital loss. This can be claimed to offset your capital gains in your returns.

Exchanging Crypto for Other Crypto

This event is triggered when you exchange one crypto for another crypto asset. For example, you buy BTC for $1000 and when it reaches $1500, you exchange it for ETH, the capital gains of $500 on your BTC are considered taxable.

Using Crypto to Pay for Goods and Services

As per IRS, using cryptocurrency for purchasing goods or services is taxable. If you pay for a service using virtual currency that you hold as a capital asset, then you have exchanged it for that service and will realize a capital gain or loss.

Let’s say you buy Bitcoin worth $500 and after 3 years the value of the same reaches $10,000. If you now use this crypto to buy a real property (e.g. a house), you realize long-term capital gains of $9500 which is taxable.

Earning Crypto for Goods or Services

When you receive crypto in exchange for performing services, you realize ordinary income.

The amount of income is the fair market value of the crypto, in U.S. dollars, when received. This is also your cost basis for any future capital gains you make on this asset. 

In an on-chain transaction you receive the crypto on the date and at the time the transaction is recorded on the distributed ledger.

Airdrops

If you receive any crypto through airdrops, it is considered as an ordinary income by the IRS which is subject to 10-37% of income tax. 

You are taxed on the market value of the crypto asset, in U.S. dollars, when you received it. This should be reported as income at the time of filing your tax forms.

Hard Forks

A hard fork occurs when a crypto protocol is upgraded, resulting in a permanent diversion from the initial blockchain.  As a result, a new cryptocurrency is created for the new blockchain in addition to the old crypto asset.

As per IRS, crypto hard forks are considered ordinary income if you receive a new crypto following hard fork. However, if you do not receive any new cryptocurrency, you don’t have any taxable income.

How Are NFTs Taxed?

Just like other cryptocurrencies, NFTs are subject to both income tax and capital gains tax. Some taxable events include:

  • Buying NFT with crypto 
  • Selling an NFT for crypto or fiat 
  • Exchanging an NFT for another
  • Income from the sales of primary or secondary NFTs which is subject to ordinary income tax

If you dispose of your NFTs in less than twelve months, you are subject to short-term capital gains tax at a rate of 10-37%. This rate is also applicable to any income from NFTs.

If you hold your NFTs for more than a year before disposing of them, you are subject to long-term capital gains tax at a rate of 0-20%.

However, IRS released a notice on March 21, 2023, where they described the treatment of some of the NFTs as “collectibles”. As of now, the IRS intends to determine when an NFT is treated as a Section 408(m) collectible by using a "look-through analysis." 

Under this analysis, an NFT is treated as a collectible if the NFT's associated right or asset falls under the definition of collectible in the tax code. As per Section 408(m)(2), collectibles include:

  • Any work of art
  • Any rug or antique
  • Any metal or gem
  • Any stamp or coin
  • Any alcoholic beverage
  • Any other tangible personal property specified by the Secretary

Section 408(m)(3) describes that certain coins and bullion are excluded from the

definition of collectible. 

If your NFT falls under the “collectible” category, you have to pay a maximum tax of 28% in case you have held your asset for more than a year. It doesn’t apply to the assets sold before twelve months.

Capital Gains Tax Rate For 2023

As per IRS, you are taxed differently on your crypto assets based on how long you have held them. 

If you sell your crypto in less than a year, your capital gains taxes are considered short-term. In case you hold your crypto for more than twelve months, your taxes fall under the long-term capital gains taxes.

Both of these types of capital gains taxes have different tax rates depending on the period of holding, filing status, and your income bracket for the year.

Short-term Tax Rate

Your short-term capital gains taxes are based on the Federal Income Tax rates and are the same as the rates on your taxable income. It ranges from 10-37% tax rate depending on your income and filing status.

Here are the tax rates for the financial year 2023 (taxes due in April 2024):

Long-term Tax Rate

If you hold your crypto assets for more than a year, you are taxed under long-term capital gains which is lower for most investors. You don’t have to pay any long-term capital gains tax if your income is $44,625 or less (for single filers) and $89,250 or less for married couples filing jointly. 

If you earn more than the mentioned income, you are subject to a tax rate of 15% or 20% depending on your taxable income and filing status.

For the financial year 2023, here’s the tax rate for long-term crypto capital gains

Not sure how to calculate your crypto taxes? Check out our free crypto tax calculator

When Do You Have to Pay Net Investment Income Tax (NIIT)?

The Net Investment Income Tax (NIIT) may add a 3.8% tax surcharge to individuals with a net investment income and also modified adjusted gross income of more than the following threshold: 

For more details on Net Investment Income Tax, refer to this IRS guide.

How To Report Your Crypto Taxes?

As per IRS, you must:

If you are looking for an easy way to keep your taxable transactions updated and calculate your crypto taxes, crypto tax software like Kryptos can help. 

Simply connect your wallets and the app will calculate your crypto taxes in minutes. It also automatically identifes any tax-saving events so that you save more on taxes.

To learn more, Get started for free today.

FAQs

1. What Cryptocurrency Transactions Can Be Taxed?

The following cryptocurrency transactions are subject to taxation:

  • Selling crypto for fiat currency (e.g., USD)
  • Exchanging crypto for other crypto
  • Using crypto to pay for goods and services
  • Receiving crypto as payment for goods or services
  • Mining cryptocurrency
  • Hard forks and chain splits
  • Receiving staking rewards, airdrops, or other income from crypto

2. What's Your Tax Rate for Cryptocurrency Capital Gains?

Your cryptocurrency capital gains tax rate depends on whether the gains are short-term or long-term:

  • Short-term capital gains tax: If you held the crypto for one year or less, your gains are considered short-term and are taxed at your ordinary income tax rate.
  • Long-term capital gains tax: If you held the crypto for more than one year, your gains are considered long-term and are taxed at a rate of 0%, 15%, or 20%, depending on your income.

3. Do I Pay Taxes on Crypto If I Don't Sell?

 Generally, you do not have to pay taxes on crypto holdings that you have not sold or exchanged. However, you may be subject to taxes if you received crypto through mining, staking, or as payment for goods and services.

4. How Can I Avoid Paying Taxes on Crypto?

 It is essential to comply with all tax obligations. However, you may minimize your tax liability by:

  1. Holding crypto for more than one year to qualify for long-term capital gains tax rates, which are generally lower.
  2. Harvesting tax losses by selling crypto at a loss to offset gains from other transactions.
  3. Donating crypto to a qualified charity for a potential tax deduction.
  4. Utilizing tax-advantaged accounts, such as an individual retirement account (IRA), to invest in certain crypto assets.

Please consult a tax professional for personalized advice on minimizing your tax liability.

5. How is crypto taxed?

Crypto is taxed as property by the IRS, which means transactions involving crypto are subject to capital gains and losses. You must report profits or losses exchange on your tax return. Additionally, receiving crypto as payment or mining rewards is considered taxable income.

6. Do you pay tax when transferring crypto?

Transferring crypto between your own wallets or accounts generally does not trigger a taxable event. However, exchanging crypto for other crypto or using crypto to pay for goods and services are considered taxable events, and you must report any capital gains or losses on your tax return.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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What is a Utility Token And Its Tax Implications?

Discover the concept of utility tokens in our guide. Learn how utility tokens differ from other cryptocurrencies and explore their tax implications.

With the continuous expansion of cryptocurrencies beyond Bitcoin, we have seen an explosion of altcoins, each with its own unique characteristics and use cases.

Some of these digital assets serve as a new form of digital currency, while others stand as speculative tools amidst the ongoing cryptocurrency boom. However, for those seeking an altcoin with a genuine use case, utility tokens come to the fore.

In this comprehensive guide, we delve deep into the world of utility tokens: discussing what exactly utility tokens are, why they hold such significance in the blockchain ecosystem and their tax implications.

What Are Utility Tokens?

Utility tokens are a type of “pre-mined” token issued on a blockchain of a project to serve a specific purpose within the project’s ecosystem. They are usually created by developers all at once and are distributed to investors during the initial coin offering (ICO) to fund the development of the blockchain project.

These tokens are not created as a form of investment but rather as a user pass to exclusive benefits once the project is developed.

Some examples of utility tokens include:

  • Binance Coin (BNB) is mostly used to pay trading fees on the Binance exchanges. In return, users get exclusive discount offers for using their native token instead of other cryptocurrencies.
  • ADA, the native token of the Cardano blockchain, is a utility token used to pay transaction fees on the blockchain.
  • The ERC-20 token standard is most commonly used for creating utility tokens on the Ethereum blockchain used to pay for different products or services.
  • Virtual Cards - the world's first virtual payment card that offers true anonymity to its users. Unlike many other virtual cards out there that are tied to bank accounts or require loads of personal information to activate, Virtual Card keeps things simple and secure. While some virtual cards allow for cryptocurrency transactions and come with linked crypto wallets, they often go against the very essence of decentralized blockchain technology. By directly linking a virtual card to a person's identity and financial data, these cards undermine one of crypto's key freedoms and advantages. Certain virtual cards offer rewards such as native tokens based on the blockchain technology it's built on or Crypto for every purchase you make, Example Nexo. With Virtual Card Anonymous, you can enjoy the convenience of virtual payments without sacrificing your privacy.

How Do Utility Tokens Work?

Utility tokens work as digital assets that grant holders the right to participate in an existing or future product or service of a blockchain project. This can include access to premium features, the ability to vote on system upgrades, or the right to use a platform's services.

The value of utility tokens is often determined by supply and demand dynamics. As the demand for the product or service offered by the platform increases, the value of the utility tokens used on that platform can increase. 

It's important to note that holding a utility token does not equate to holding equity in the company that issues the token. 

Instead, it provides access to specific functions of the project or platform. These tokens represent a user-centric asset that aims to enable and enhance the user experience within a given platform.

Common Use Cases of Utility Tokens

Here are some of the most common use cases of the utility tokens in a blockchain network:

Utility Tokens in DeFi

In DeFi, utility tokens often grant access to services like lending, borrowing, or yield farming. When users engage in these activities, they're likely triggering a taxable event. Every transaction involving a change in the token's ownership can be taxable and should be recorded accurately for tax purposes.

Utility Tokens in Gaming Industry

Gaming platforms use utility tokens for purchasing in-game assets, unlocking special features, and more. These tokens can often be traded for other cryptocurrencies or even fiat currencies.

Utility Tokens in Social Media Platforms

Social media platforms employ utility tokens to incentivize content creation, moderation, and other participatory actions. They can also be used in governance and decision-making in decentralized online communities.

Utility Tokens in Supply Chain Management

Supply chains utilize utility tokens to track products, reward eco-friendly practices, or streamline operations. Remember tokens used for business operations can have tax implications, such as deductible business expenses or capital gains/losses.

Utility Tokens vs. Security Tokens: Understanding the Key Differences

The key differentiation between utility tokens and security tokens lies in their intended purpose. 

Utility tokens are specifically designed to serve a functional role within a particular platform or ecosystem. They do not represent an investment in a company or project and do not grant ownership rights or claims on the issuer's revenue or assets. Their primary purpose is to enable and facilitate operations within a blockchain system.

Security tokens represent an investment in a project and confer ownership rights, much like traditional securities. Holders may be entitled to dividends, profit sharing, or voting rights.

These are digital assets that derive their value from an external, tradable asset and are subject to federal security regulations. Utility tokens, on the other hand, are less heavily regulated than security tokens.

Use Cases: Utility Tokens vs Security Tokens

Utility Tokens: They serve as a gateway to access, use, or participate in a specific blockchain platform or network. 

Security Tokens: They serve as digital representations of traditional securities like stocks, bonds, or real estate. They can be used to automate compliance processes, fractionalize ownership, or improve liquidity.

Tax Implications: Utility Tokens vs Security Tokens

Utility Tokens: The tax treatment for utility tokens can be complex, as it depends on how they are used. If a utility token is bought and sold for a profit, it could be subject to capital gains tax. If it's received as payment for goods or services, it can be treated as income.

Security Tokens: As investments, security tokens are typically subject to capital gains tax when they are sold. If they pay dividends, those will be taxed as income.

Issues and challenges with utility tokens

Utility tokens have lots of great functionality, but they aren’t without their challenges as well. 

Here are a few things to consider.

An image of people exchanging money for utility tokens

Regulatory challenges

Regulatory norms around utility tokens are still evolving and can vary greatly between jurisdictions. This regulatory uncertainty can lead to unexpected legal and tax implications.

Potential for scams

Many utility tokens remain unregulated. However, being unregulated comes with its own issues, including scam potential. There have been many cases of scammers creating tokens and ICOs just to make quick money before vanishing. This is commonly referred to as a rug pull in the crypto community.

High transaction fees

Many utility tokens are ERC-20 tokens that run on the Ethereum blockchain. Ether gas fees can be very high, as much as $50 or more for a transaction. The Ethereum team is working on a solution to help reduce gas prices. But in the meantime, prices may only get more expensive as more people enter the cryptocurrency space.

Lack of decision-making

Utility token holders may not get to provide feedback or vote on the project's direction. All of the decisions may be centralized in the hands of founders and developers. Compare this against security tokens, which act like shares in a company and allow the holder to have a lot more say over the future of the project.

Success is tied to the overall project

A utility token is only useful if there’s a larger project for it to exist as a part of. If a project doesn’t succeed, then its utility token will lose all of its value. There can also be liquidity problems when a project doesn’t have the funds needed for continued development.

Tax Implications of Utility Tokens

In most cases, utility tokens do not have distinct tax consequences compared to other types of cryptocurrency assets. Generally, they are subject to the same tax treatment as any other crypto asset in your jurisdiction. However, this may evolve over time.

While utility tokens are primarily designed for functionality rather than profit-making, you may be subject to capital gains tax if you dispose of them for a profit. 

Disposal of your utility tokens may be:

  • Exchanging them for another crypto
  • Selling it for fiat
  • Purchasing goods or services using the crypto

Acquisition of utility tokens may trigger VAT at the level of the buyer, depending on your jurisdiction and the characterization of your transaction.

If you are uncertain about the tax treatment of transactions involving utility tokens in your specific jurisdiction, it is advisable to consult a local tax professional. 

How can Kryptos help?

Kryptos offers a comprehensive solution for managing crypto transactions, including utility tokens, with a focus on accurate tax reporting. 

Our software allows you to import transaction data from various sources and seamlessly reconcile them for tax purposes.

When it comes to utility tokens, our platform goes the extra mile by auto-categorizing transactions whenever possible. This feature ensures that the specific tax implications related to utility tokens are correctly applied. 

Report your utility tokens in just a few clicks and ensure legal compliance to avoid paying extra taxes. To get started, Sign Up Now.

FAQs

1. What is a Token vs. Utility Token?

Tokens in the cryptocurrency world are a type of digital asset that can be traded. They are built on existing blockchains, like Ethereum or Binance Smart Chain. Tokens can be divided into various categories, among which utility tokens are a primary one. While a token is a general term, a utility token refers to a specific type of token that provides users with access to a product or service in a blockchain ecosystem. They don't signify ownership in a company, unlike security tokens, but grant user rights within a platform.

2. Why Buy Utility Tokens?

Individuals buy utility tokens for several reasons. Primarily, they are purchased to access, use, or participate in a specific blockchain platform or network. They can also be bought for speculative purposes, where individuals hope the token's value will increase over time. 

3. How Do Utility Tokens Make Money?

The value of utility tokens can increase or decrease based on supply and demand dynamics in the market. Investors can make money if the value of the tokens they hold appreciates over time. This could happen if the platform becomes popular, driving up demand for the tokens, or if the supply of tokens decreases.

4. Are Utility Tokens Taxed?

Yes, utility tokens can be subject to tax. Most tax jurisdictions treat cryptocurrencies, including utility tokens, as property. This means that buying, selling, or trading utility tokens can trigger a taxable event, typically treated as capital gains or losses. Income tax might also apply if the tokens are received as income. Tax laws vary greatly by jurisdiction, so it's important to consult with a tax professional or use a specialized tool like Kryptos.

5. What Is the Best Utility Token?

The "best" utility token depends on individual goals and risk tolerance. Some popular utility tokens include Binance Coin (BNB), and Uniswap's UNI. It's crucial to conduct thorough research and consider factors like the project's use case, team, tokenomics, and community before investing.

6. Are Utility Tokens Fungible?

Utility tokens can be either fungible or non-fungible, depending on their design. Fungible tokens are interchangeable with each other (like currency notes), while non-fungible tokens (NFTs) are unique and can't be interchanged on a one-for-one basis. Most utility tokens are fungible, ensuring smooth and equal exchange within the ecosystem.

7. What Are the Benefits of Utility Tokens?

Utility tokens offer numerous benefits. They incentivize participation in a blockchain ecosystem and can unlock special features or services. They also democratize access to specific services and allow global participation. Utility tokens can also serve as a fundraising mechanism for developers and act as an internal currency for the ecosystem, promoting transactional efficiency. For investors, they provide a potential opportunity for financial gain if the token's value appreciates.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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What is Staking In Crypto?

Discover the concept of staking for cryptocurrency. Learn how staking allows you to earn rewards and contribute to blockchain networks.

Often referred to as the environmentally-friendly alternative to mining, staking has quickly become a key component in the world of cryptocurrencies. But what exactly is staking?

In layman's language, staking involves earning rewards by holding or locking up specific cryptocurrencies, similar to earning interest on a savings account over time. 

However, staking goes beyond passive holding and actively contributes to the security and operation of blockchain networks.

In this article, we discuss everything you need to know about staking and its tax implications.

What is Staking?

At its core, staking involves participating in a proof-of-stake (PoS) or delegated proof-of-stake (DPoS) blockchain network. Here, you lock some cryptocurrency in a digital wallet to support the blockchain operations such as transaction validation, security, and governance. 

Unlike traditional mining, which requires considerable computational power, staking involves verifying transactions and maintaining network security based on the amount of cryptocurrency you hold and are willing to "stake" as collateral.

Why Only Certain Cryptocurrencies Can Be Staked?

Not all cryptocurrencies can be staked. The ability to stake a token depends on the blockchain's consensus mechanism. 

Staking is available in PoS and DPoS networks, like Ethereum 2.0 or Tezos. Cryptocurrencies that rely on proof-of-work (PoW) consensus, such as Bitcoin, cannot be staked.

Let’s discuss this in detail.

Proof of Work (PoW) VS Proof of Stake (PoS) 

Cryptocurrencies utilize different consensus mechanisms to maintain their decentralized nature, with two main types being: Proof of Work (PoW) and Proof of Stake (PoS).

In many cryptocurrencies, for instance, Bitcoin or Ethereum 1.0, miners worldwide compete to validate transactions by solving complex cryptographic puzzles. The first miner to solve the puzzle and verify a block of transactions is rewarded with a designated amount of cryptocurrency. This consensus mechanism is Proof of Work (PoW) which requires significant energy consumption and computational power.

Proof of Stake (PoS) operates differently. It relies on users, known as stakers, who invest in the blockchain by holding and staking their cryptocurrency. 

Stakers are selected to add new blocks to the network and receive rewards. Staking can be done either by becoming a network validator, which requires a substantial investment, or by providing liquidity on platforms that support staking.

These blockchains (e.g. Ethereum 2.0) are specifically designed to require staking participation for transaction processing. 

Unlike PoW, where miners solve puzzles, PoS blockchains rely on stakers to provide liquidity, ensuring the network's operation.

Exploring Staking in Action: How Does Staking Work?

If you hold a PoS-based cryptocurrency, you can stake it on the network to earn rewards. This process involves several steps including:

  • Acquiring Cryptocurrency: The first step is to acquire the PoS cryptocurrency that you wish to stake. This usually involves buying it on an exchange.
  • Storing in a Wallet: Next, you'll need to move your cryptocurrency into a wallet that supports staking. Some exchanges also offer staking services.
  • Staking: Once the coins are in a compatible wallet, you can choose to stake them. This will lock up your tokens for a set period, during which they will be used to support network operations.
  • Earning Rewards: As you stake your coins, you'll earn rewards, typically as additional tokens. The amount you receive depends on factors such as the length of time you stake your coins and the total amount of coins staked in the network.

An Example of Staking: Ethereum 2.0

Let's understand this better with a simplified example of staking Ethereum 2.0:

Ethereum, which originally operated on a proof-of-work consensus mechanism similar to Bitcoin, has been transitioning to a proof-of-stake system to improve scalability, security, and sustainability. This new PoS system is Ethereum 2.0.

The minimum amount of ETH required for staking on Ethereum 2.0 is 32 ETH. If you have this amount, you can become a validator who processes transactions and creates new blocks in the blockchain. 

If you have less than 32 ETH, you can still participate in staking via staking pools, where multiple stakeholders pool their ETH together.

By staking your ETH and becoming a validator, you help secure the Ethereum network. In return, you are rewarded with additional ETH. The reward rate varies but is currently around 4.6% annually. 

Remember, these rewards are considered income and can have tax implications.

The Benefits of Staking: Why Stake Your Cryptocurrency?

Staking offers benefits for both individuals and the network itself. As a participant, staking allows you to lock up a specific amount of cryptocurrency with a protocol or platform and earn rewards or "interest" in return.

From the network's perspective, there are several advantages. 

  • Firstly, when users stake their tokens, it reduces the available token supply. This scarcity can potentially increase the value of the tokens as demand rises and supply decreases.
  • Staking contributes to the network's processing power, enabling more efficient transaction validation. This means the network can handle transactions more effectively and securely.
  • Staking enhances the decentralized nature of the network. Stakers actively participate in the transaction validation process, eliminating the need for a centralized authority to control and determine transaction processing. This decentralized approach fosters trust, transparency, and ensures that no single entity has control over the network.

Staking and Taxes: Navigating the Tax Implications of Staking

Tax treatment for staking and the rewards vary by region. In most countries, staking rewards are considered income and need to be declared in the tax returns accordingly. 

You may also be subject to capital gains taxes when cashing out these rewards, such as:

  • Converting the rewards to fiat currency
  • Exchanging it for another cryptocurrency
  • Purchasing any goods or services using the crypto

Depending on your income bracket and holding period, your capital gains tax rate may vary.

It's essential to understand the specific guidelines in your region or consult with a qualified tax professional for accurate advice.

So, How Do You Deal With Staking Taxes Using Kryptos?

Calculating all the different tax implications on your staking rewards can be complex. Fortunately, Kryptos’s crypto tax software includes a dedicated category for staking rewards – making tracking and reporting them for tax purposes easy. 

If the rewards haven't been automatically categorized, simply choose 'staking rewards' from the 'receive' option in the menu. This ensures accurate and efficient management of your staking activities.

To try it for free, Sign Up Now.

FAQs

1. Can all cryptocurrencies be staked?

Not all cryptocurrencies can be staked. Only cryptocurrencies that use a proof-of-stake (PoS) or delegated proof-of-stake (DPoS) consensus mechanism can be staked. Cryptocurrencies like Ethereum (ETH) and Cardano (ADA) can be staked, but cryptocurrencies that use a proof-of-work (PoW) consensus, like Bitcoin, cannot.

2. What are staking rewards?

Staking rewards are additional cryptocurrency tokens that you earn as compensation for staking your tokens to support a blockchain network. The rate at which you earn staking rewards varies depending on the cryptocurrency and the staking protocol.

3. What is a staking pool?

A staking pool is a group of coin holders merging their resources to increase their chances of validating blocks and receiving rewards. They combine their staking power and share the rewards proportionally to the amount each person has staked.

4. Are staking rewards taxable?

Yes, staking rewards are often considered taxable income. The exact tax treatment can vary based on jurisdiction and individual circumstances, but staking rewards are typically taxed as income at their fair market value at the time they were received. Always consult with a tax professional for advice tailored to your situation.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Top 10 Free Crypto Telegram Channels You Need To Follow In 2023

Discover the best free crypto Telegram channels to follow in 2023! Stay updated with top-notch insights, trading tips, and the latest trends. Don't miss out on valuable crypto knowledge!

Since 2020, Telegram has emerged as one of the leading channels for crypto communities. Telegram’s ease of use, anonymity features, and security has all added up to attract brand and users worldwide to this platform.

Whether you are an active crypto trader, a creator, or just a beginner in the crypto space – you should leverage these communities to stay updated on this ever-evolving space and make more informed decisions.

But with thousands of telegram channels available, how do you choose the best ones?

To help you out, we have shared the top 10 FREE crypto telegram channels in 2023. So, you can skip your research and start exploring these active crypto communities today.

Binance Announcements

Binance is the world’s leading cryptocurrency exchange with a vibrant community worldwide. It has over 60 official Telegram groups on a variety of topics, from trading and NFTs to platform announcements and more.

Binance Announcements is the official announcement channel for Binance with over 550 thousand members. You may want to join this group if you are looking to:

  • Stay updated with the Binance ecosystem
  • Grab the latest discounts and offers
  • Learn trading advice and local trends
  • Explore meet-ups and events hosted by Binance
  • Or, simply join the crypto conversation

To join their official announcement group, click here.

Whale Alert

In the cryptocurrency space, ‘Whales’ are referred to as wallets which are holding a large amount of crypto. This also means any activity in whale wallets may impact the crypto trend.

This is where the Whale Alert channel can come in handy. This crypto channel has an advanced blockchain tracker and analytics system reporting large and interesting transactions as they happen. 

All the data is also available through their API.

Interpreting these transfers can help you understand whether a token has any actual value or is being manipulated. Also, it gives an insight into the market trend and whether there’s any intention to pump or sell the token.

To join the Whale Alert Telegram channel, click here.

DeFi Million

As of March 2023, the cryptocurrency market capitalization stands over US$1 trillion and has more than 6 million active users.

With such a huge market and multiple projects launching every day, staying updated in the DeFi space can become a little difficult. Especially, when a lot of false projects also seem promising.

With more than 1 million subscribers, DeFi Million is one of the best crypto telegram channels for crypto traders and DeFi lovers. They bring the best projects and tokens for you and help you make more informed choices.

The result of the projects depends on multiple factors, even if they are built on trustworthy protocols. Do your due diligence before investing in any project or token.

To join their telegram group, click here.

Bitcoin Industry

If you want to stay updated with all the latest news in the crypto space without having to research on your own, consider subscribing to this telegram channel.

The Bitcoin Industry channel has over 430 thousand members and is free to join.

Only admins are allowed to send messages in the group, so this channel can be your daily dose of crypto news without any spam.

To join this crypto telegram channel, click here.

Binance Killers

The tagline of this group is,

“Binance is the world's largest crypto exchange in the world… why? Because it has made a fortune for those who know how to use it.”

And with frequent news updates, trading tips, crypto signals, sentiment analysis, and a lot more exciting features – this crypto telegram channel helps you exactly do that. 

With over 220 thousand members, it is one of the fastest-growing telegram groups in the crypto space. Apart from Binance, the channel has also started including other popular crypto channels like Bybit.

To join their channel, click here.

Legit Airdrops

Are you someone who keeps hunting for good airdrops? Then this telegram channel can make your work a lot easier.

As the name suggests, Legit Airdrops searches all airdrops daily and shares the best ones with you. They also promote airdrops which can be helpful for brands looking to leverage their existing community.

To join the channel, click here.

Coin Bureau Insider

If you have been in the crypto space for some time, chances are you have across the Coin Bureau Youtube channel. This is one of the most popular channels out there with over 2 million subscribers.

And now, they have brought all these insights directly into their telegram group. You get access to instant updates, trading advice, and insights directly from ‘Guy’. 

So if you like their Youtube channel, you will love their telegram group too.

To join, click here.

Wallstreet Queen Officials

This channel is becoming increasingly popular for crypto trading with over 170 thousand members.

One unique thing about this channel is that it’s building a thriving women's community to share skills and grow together in the trading industry.

They share regular updates, useful resources, and any other help to succeed in the crypto market. Always do your own research before investing.

To join this crypto telegram channel, click here.

Binance NFTs

If you are a Binance user, an NFT creator, or simply interested in the NFt space, you may want to watch out for this telegram group.

This is the official Binance channel for NFTs in the Binance ecosystem and has over 77 thousand members. 

Since this channel is backed by Binance, you do not have to question the authenticity of the information shared here. 

To join this channel, click here.

Metaverse NFT News

The global metaverse market was worth US$65.5 billion in 2022. This is expected to grow at a compound annual growth rate (CAGR) of 41.6% from 2023 to 2030. 

If you are looking to know the latest updates in this space and more, Metaverse NFT News can be a helpful telegram channel.

At the time of writing, this group has over 73 thousand subscribers and is continuously growing. They post daily updates on metaverse and NFTs so the channel is always active.

To join this channel, click here.

Wrapping Up

Whether you are an active crypto trader, NFT lover, or just watching out this space – these are some of the best FREE crypto telegram channels to follow in 2023. Some of them also have VIP access offering premium services.

Invested in crypto assets? Don’t forget to track your tax liability in advance to avoid last-minute surprises. Use crypto tax software like Kryptos to auto-sync your transactions and calculate taxes in minutes. 

With the integration support of the leading exchanges, over 1000+ DeFi protocols, and NFTs – Kryptos ensures your legal compliances are always sorted. 

To get started, Sign Up for Free now.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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The Unprecedented Pace of Crypto Adoption and Its Implication on Crypto Taxes

Worried about how international crypto regulations affect you and your crypto taxes? Here’s everything you need to know about international regulations and their effect on crypto taxes.

According to a report by Crypto.com, global cryptocurrency owners increased by 39% in 2022 – rising from 306 million in January to 425 million in December.

And with the adoption consistently soaring with every passing year, it uncovers some serious regulatory challenges. Regulators from across the globe have joined hands and are trying to make coordinated efforts to regulate this space. Kryptos is here to uncover what these regulations actually mean in terms of crypto investments and taxes and how they will affect you.

What is The Need For Global Crypto Regulations?

Crypto has evolved significantly since 2011 when it was primarily associated with Bitcoin. It now includes all digital assets and has revolutionised sectors such as Finance and Art. Small businesses embrace crypto for its modern utility, while big businesses hold it as a hedge against inflation on their balance sheets.

Source: Statista

However, it’s not all good news. The crypto space represents a significant economic value and since there are interlinkages with the traditional financial ecosystem and capital markets, its collapse may have severe repercussions on our existing financial frameworks. 

The fall of Terra Labs and FTX had a major impact on retail and institutional investors. Crypto fraud and theft are more prevalent, and money laundering with crypto tumblers is a negative use case the industry was initially accused of.

Crypto assets pose real threats such as operational and financial integrity risks, lack of investor protection, insincere reporting, and over-dependence of small nations on crypto in the absence of proper payment infrastructure. These threats highlight the need for a comprehensive regulatory framework.

Crypto and The Global Regulatory Landscape

Governments globally tighten crypto regulations to protect against financial losses. Canada adopts a relaxed approach, offering a 50% capital gains tax discount. Conversely, India takes a conservative stance, imposing a 30% tax rate on all crypto transactions, excluding additional charges. Diverse strategies address crypto asset taxation.

Europe's AMLD-5, AMLD-6, and FinCEN's final rule in the USA enforce strict KYC regulations on exchanges. The proposed DAC-8 framework in the European Union, launching in January 2026, will require exchanges to collect, validate, and report user-related information for crypto assets. This aligns with the upcoming implementation of the CARF in 2024, marking significant progress.

MiCA (Markets in Crypto-Assets) is another regulatory framework proposed by the European Union to bring governance practices to crypto firms and avoid financial instabilities like rout and contagion.

Therefore, if you’re planning to hide some crypto transactions from your local tax authorities with the intention of saving a couple of bucks in taxes, don’t. It might attract legal trouble because most tax authorities can track your crypto transactions and correlate them with your KYC details to identify discrepancies. 

Regardless of what part of the world you reside in, you should honestly report all your crypto transactions and file your crypto taxes on time. If you have any doubts regarding how to file your crypto taxes, or how it is taxed in the first place, you can visit Kryptos’s Ultimate Tax Guide.

Kryptos’s Role in Global Regulatory Efforts

Regulators in most countries compel residents to maintain proper records of their crypto transactions from the past 3-7 years depending on the country. In fact, the Australian Taxation Office (ATO) recommends using a “trusted crypto tax calculator” for proper record keeping of crypto transactions.

Kryptos has collaborated with the  INATBA – International Association for Trusted Blockchain Applications, a trusted and influential association in the heart of Europe that facilitates dialogue between public and private entities for the global convergence of regulatory approaches and the global adoption of blockchain and related technologies. You can read more about the collaboration here.

It is one of the most trusted crypto tax calculators that offers over 2000+ wallet, exchange, and DeFi integrations and lets you fetch your transactions to the central dashboard. Moreover, with features like live tracking, new transactions are immediately added to the ledger. 

You can also use Kryptos to generate country-specific, legally compliant tax reports within minutes. 

Conclusion: 

Although the importance of these regulatory changes can’t be denied, their existence makes crypto taxes more intimidating. That’s where Kryptos comes into the picture with a comprehensive set of tools and resources to educate and empower individuals and help them file their crypto taxes conveniently.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Kryptos vs Taxbit: Which Tax Software is the Best for You?

Are you confused about which tax software is the best for you? Don’t worry we have the answer. Here’s a comparison of Kryptos with another software Taxbit.

If you’re reading this then that probably means one of two things. First, you’re an ardent crypto investor looking for an intelligent alternative to filing your crypto taxes this year, or second, you’ve already used a crypto tax software before, you’re just looking for a better one. 

Regardless of which category you fall in, this blog is for you. In this blog, we will compare Kryptos with one of the most popular crypto tax software, Taxbit, to reveal how Kryptos is the best crypto tax software out there and every other tax software in the market pales in comparison. 

The comparison is divided into utility-centric sub-categories that compare the two tax software metrics that are most important for the users. We top it off by answering the most frequently asked questions regarding crypto taxation and software-based tax reporting.

So buckle up and let’s dive into the comparison.

What are Crypto Tax Tools?

Crypto tax software is a highly efficient tool designed to simplify the complex tax accounting process for individuals engaged in crypto transactions. This software is accessible through different platforms, such as browser extensions, web applications, or mobile apps, and is packed with advanced features that enable automatic retrieval of transaction data from multiple digital wallets and crypto exchanges. By consolidating user activities into a single dashboard, these tools eliminate the need for manual entry and provide a comprehensive view of all cryptocurrency-related transactions.

By leveraging extensive data sets with critical information and adhering to country-specific regulations, these apps can perform accurate income and capital gains calculations. They cross-reference this data with local tax laws, creating reliable tax reports within minutes. Overall, crypto tax tools are intentionally developed to simplify the tax filing process for cryptocurrency investors globally while being cost-effective.

Kryptos vs Taxbit: Supported Countries

Taxbit's services are exclusively limited to users in the United States, thus barring individuals outside the US from utilising their offerings. In contrast, Kryptos provides full support to three countries, namely Sweden, Norway, and Denmark, with plans to expand its scope to over 10 countries, including Canada, the United Kingdom, and the United States within a few months.

Despite being a major player, Taxbit struggles with accessibility issues, which is where Kryptos steps in to offer its services across multiple countries with regional customer support. We strictly adhere to local tax regulations and ensure that your tax reports are audited by CPAs from your jurisdiction to avoid any mistakes or legal complications.

At Kryptos, we don't rely on algorithms alone to generate your tax reports. Instead, we verify their accuracy to ensure that you don't end up paying extra taxes. 

Kryptos vs Taxbit: Supported Exchanges and Wallets

Although specific statistics have not been listed on the Taxbit website, however, from our research we found out that Taxbit claims to support 700+ integrations including exchanges, wallets, and DeFi platforms. Taxbit claims to support 500+ exchanges and wallets from the following blockchains:

  • Ethereum
  • Bitcoin
  • Dash
  • Litecoin
  • Helium
  • Dogecoin
  • Binance Smart Chain
  • Bitcoin Cash

Any wallets that do not operate on the following chains are not supported on Taxbit, you can upload the CSV file of these transactions directly to accommodate them in your tax report. 

Kryptos supports close to 100+ top crypto exchanges and we have listed almost every one of those exchanges on our website so that our users don’t have to guess whether their exchange is supported on the platform or not. Here's a list of the most popular exchanges supported by Kryptos:

Coinbase, Binance, Kraken, Crypto.com, Coinbase Pro, Phemex, AscendEX, KuCoin, Whitebit, CEX.io, Bitrex, Deribit, Digifinex, Delta Exchange, Cointiger

When we tried to find all the exchanges supported by Taxbit on their website we couldn’t locate such a crucial metric, so at this point, we will have to take their word for it. As far as wallets are concerned Taxbit only supports wallets from 8 major blockchains, and if your wallet doesn't operate on these 8 blockchains, then you would have to upload your transactions manually on the platform in CSV format. Lucky for you Kryptos supports 100+ wallets from 50+ blockchains, so you don’t have to go through the hassle of manually fetching your transaction list and uploading them.

Kryptos Vs Taxbit: Integrations

Taxbit offers a little over 700 integrations including all the exchanges, wallets, and DeFi protocols, which looks impressive until you look at the integrations offered by Kryptos. Kryptos offers more than 1,500+ integrations. This makes it easy for people to fetch all their transactions and generate accurate tax reports.

The entire point of using crypto tax software for filing your taxes is to automate manual processes and make the overall task easier. If tax software doesn't support enough integrations to auto-fetch all your transactions, and makes you go through manually fetching your transactions from your exchange or wallet as a CSV file and then uploading it on the platform, then what’s the point?

A good crypto tax software should be able to fetch transactions from anywhere and everywhere and should automatically identify any duplicate transactions so that you don’t end up paying more taxes than you actually owe. Kryptos with its 1,200+ integrations is the perfect choice for anyone looking to make filing taxes more convenient. It can easily auto-fetch your transactions from across your investment pool and generate legally compliant tax reports within a matter of minutes and all you need to do is add all your accounts on the platform and wait for your tax report.

Kryptos Vs Taxbit: Features and Services 

Both Kryptos and Taxbit are loaded with features like a centralised dashboard, live tracking, automated accounting, and DeFi support. However, the features and services offered by Taxbit are entirely designed to accommodate the needs of US citizens, and even the accounting methods and tax-saving strategies comply with US tax laws.

So regardless of how good the feature list of Taxbit appears to be, it is only accessible to those living in the US. Kryptos on the hand offers its services to people across 3 countries and we will soon expand to 10+ countries. The auto-sync feature that we offer to our premium members is a cut above the rest, reflecting any new transactions within seconds of being executed, and we do that for NFT transactions as well. 

Kryptos has almost all the features that Zenledger has, plus some extra ones that make it even better for people all around the world. 

Here’s a list of some of the other unique features offered by Kryptos:

  • Direct APIs and CSV support
  • Automated Tagging for different transaction types
  • Supports all time zones and currencies
  • Supports 1000+ DeFi transactions
  • Easy-to-use UI for users
  • Supports 22,000+ cryptocurrencies across 100+ exchanges
  • Inbuilt tax-saving strategies like Tax Loss Harvesting
  • DeFi and NFT profile overview
  • CFA audits on tax reports
  • Supports multiple cost-basis methods

Kryptos vs Taxbit- Other Supported Services(Mining, Staking, DeFi Liquidity Provisioning, NFTs, etc)

Both Kryptos and Taxbit offer DeFi support, however, the extent of support differs vastly. Where Taxbit supports less than 10 DeFi exchanges, Krytoskatt supports more than 1,000. Apart from this both tax software support NFT transactions, but Kryptos takes that support one step further by offering auto-sync for NFT transactions making the overall experience better and more convenient for the user.

Mining, staking, lending, liquidity provisioning, you name it. Kryptos supports all kinds of transactions and also has automated tagging to segregate transactions based on categories. 

Kryptos makes it easy for you to keep track of all your NFT transactions, no matter which blockchain they're on. It even generates your NFT tax report in just a few minutes! We also support over 1,000 DeFi protocols, top DAOs, and more than 30 EVM chains. Whether you're staking, LP'ing, or lending, Kryptos sorts all your DeFi transactions automatically. With over 50 labels to work with, we can deal with even the most complicated DeFi and NFT transactions accurately. When it comes to mapping transactions, Kryptos is the best in the business.

Comparison of Kryptos vs Taxbit

Best Crypto Tax Software: Kryptos vs Taxbit

Kryptos is a better choice for you if you want your tax filing experience to be hassle-free. Moreover, Taxbit is only accessible to residents of the US, so if you live outside of the US, Kryptos is the obvious choice. And if you’re still not convinced why Kryptos is the best choice for you, here are a few more reasons to convince you:

  • International Tax Reports
  • Secured by advanced encryption algorithms to ensure data security
  • 1,000+ DeFi integrations
  • Auto Sync available for both crypto and NFT transactions
  • Easier to use
  • Faster than Taxbit
  • Costs 74% less than Taxbit
  • Offers features like Tax loss harvesting(not offered by Taxbit)

FAQs

1. Why Should I Use Kryptos over Taxbit?

Simply because Kryptos is better than Taxbit, offers more utility than Taxbit, and costs significantly less than Taxbit. And if that’s not enough to convince you, here are a few additional reasons why:

  • International Tax Reports
  • Secured by advanced encryption algorithms to ensure data security
  • 1,000+ DeFi integrations
  • Auto Sync available for both crypto and NFT transactions
  • Easier to use
  • Faster than Taxbit
  • Costs 74% less than Taxbit
  • Offers features like Tax loss harvesting(not offered by Taxbit)

2. Kryptos vs Taxbit: Which Crypto Tax Software is Better?

Kryptos offers way more integrations than Taxbit. It is more affordable and is also much easier to use. Moreover, Taxbit is only available for people in the US, while Kryptos is available in three countries, with that list expected to grow to 10 countries within the next few months. Kryptos is better because it offers way more features than Taxbit for a fraction of the price. Also, the customer support at Kryproskatt is impeccable.

3. Can Kryptos Help Minimise Your Crypto Tax Liabilities?

Kryptsokatt’s algorithm can more than suggest tax reduction strategies based on the nature of your transactions, the overall structure of your transactions, and your location. It optimises your capital gain calculations by choosing the best-suited accounting methods, helping you save a ton of money on your tax bill. The algorithm also employs strategies like tax-loss harvesting to lower your tax bill while ensuring you pay the right amount of taxes, not more.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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What is Cryptocurrency Mining and Its Tax Implications?

Learn about the process of crypto mining where miners solve cryptographic equations to earn token rewards. Discover the tax liabilities you can incur in mining.

In the cryptocurrency industry, the term "mining" holds a central place. But what exactly is crypto mining and how does it work? 

If you are wondering the same, in this guide, we discuss everything you need to know about mining cryptocurrency to earn rewards and also share the potential tax liability that you can incur in the process.

What Is Crypto Mining?

Cryptocurrency mining, or simply 'Crypto mining', is the process of verifying and adding cryptocurrency transactions to a blockchain ledger.

Every time a cryptocurrency trans