Cryptocurrency Tax 101: Your Primer for Tax Season
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October 12th, 2022. No matter where you’re located, reporting your crypto taxes can sometimes feel like a nightmare.
Cryptocurrency’s unique properties make it difficult for investors to keep track of capital gains, losses, and income—especially when using multiple wallets and exchanges.
In this guide, we’ll break down how cryptocurrency is taxed, how crypto tax software can help you save hours of time and effort during tax season, and the reason why more than 300,000 investors around the world choose CoinLedger.
How is cryptocurrency taxed?
In most countries, cryptocurrency is subject to capital gains and income tax.
Capital gains tax: When you dispose of cryptocurrency, you’ll incur a capital gain or loss depending on how its price has changed since you originally received it. Examples of disposals typically include selling your crypto or trading it for another crypto.
Ordinary income tax: When you earn cryptocurrency, you’ll recognize income based on the fair market value of your crypto at the time of receipt. Examples of income typically include staking and referral rewards.
Let’s quickly walk through the tax implications of cryptocurrency in a few different European countries.
In the United Kingdom, capital gains above £12,300 are taxed between 10-20% depending on your income level. Your income from earned cryptocurrency will be taxed between 0-45%.
At this time, capital gains from selling or exchanging your cryptocurrency are not subject to income tax for those considered ‘private investors’ in Switzerland. Instead, Switzerland has a wealth tax, which is calculated based on the total value of assets (including cryptocurrency) held at the end of the year.
You are determined to be a ‘private investor’ based on five criteria, including your holding period, your crypto profits relative to your net income, your trading volume relative to your portfolio, whether you traded cryptocurrency on margin, and your derivative and futures trading activity.
Regardless of whether or not you’re considered a private investor, you will be subject to income tax on earned cryptocurrency. Income tax from federal, state, and municipal tax combined can be as high as 36% in Switzerland.
In Germany, cryptocurrency income and short-term capital gains above €600 are subject to tax between 0-45%. Disposing of your cryptocurrency after 12 months of holding is considered tax-free.
In Spain, cryptocurrency disposals are subject to tax between 19-26%. How much your crypto income is taxed varies depending on where you live in Spain. Income tax rates are set by the state and individual autonomous communities.
In addition, your crypto holdings may be subject to wealth tax depending on your total net worth.
In Ireland, capital gains are subject to a standard tax of 33%. Crypto income is taxed between 20-40% depending on your income level.
Why do I need crypto tax software?
Investors often transfer their crypto-assets between different wallets and exchanges, making calculating capital gains and losses difficult.
Let’s take a look at an example.
Hans buys €1,000 of ETH on Exchange A.
Hans transfers his ETH to his cold wallet.
Years later, Hans transfers his ETH to Exchange B and sells it for €1,800.
In this case, Hans’s capital gain should be €800.
However, Exchange B has no record of Hans’s original cost basis. All the exchange knows is that he sold his ETH for €1,800. Unless Hans has kept records of his crypto transactions, he may be liable for €1,800 of capital gain.
It’s important to remember that the example above is heavily simplified. Often, investors interact with multiple exchanges, wallets, and decentralized protocols in a year, making tax reporting even more difficult.
Luckily, crypto tax software can help. Platforms like CoinLedger can aggregate your transactions and help you generate a comprehensive crypto tax report. Whether you’re using a wallet like MetaMask or an exchange like Lykke, the platform can pull your transactions in minutes!
Why is CoinLedger the best crypto tax platform?
While there are several options on the market for crypto tax platforms, there’s a reason why more than 300,000 investors across the globe choose CoinLedger.
CoinLedger is the most user-friendly crypto tax software on the market. That’s part of the reason why the platform is rated 4.8 stars with more than 500 reviews on Trustpilot.
CoinLedger is the most affordable crypto tax platform. You can get started importing your wallets and exchanges for free! The cheapest tax report is just €44.
No matter what pricing tier you’re in, you can reach out to CoinLedger’s support team if you need help!
But don’t take our word for it! Get started with a free CoinLedger account and see for yourself why investors around the world love the platform.