Cryptocurrency Tax Guide: Trading, Crypto Mining, Reporting
SUMMARY
May 29  |  13 min read

Cryptocurrency Tax Guide: Reporting and Paying

The COIN360 Editorial Team

Different countries have different approaches to cryptocurrency regulation. Some of them are keeping pace with the times and introducing detailed guidelines. Some rely on notices issued years ago, which have not fully adapted to the latest reality in the crypto market. Others still have no regulations on cryptocurrencies at all. But in most countries, crypto operations are subject to taxes, and if you are a resident, you should be prepared to report and pay them.

This article will share cryptocurrency taxation details in 5 countries (the USA, the UK, Russia, France, and Japan). How much do you owe in taxes for trading or mining crypto, when and how to report, are there some tax-free amounts or allowances? Read on to find out more.

The USA

How are cryptocurrencies treated for tax purposes in the USA?

They are treated in accordance with Notice 2014-21 by the Internal Revenue Service (IRS) issued in 2014. A cryptocurrency (or “virtual currency”, as it is called in the text) is treated as property, not currency. Selling, exchanging or using virtual currency to pay for goods and services, as well as mining cryptocurrencies, is taxed.

Should I pay taxes on all my crypto transactions?

No, you only have to report so-called “taxable events”. These are events that trigger a tax liability, and you should file your gains or losses on your annual tax report. According to Notice 2014-21 by thу IRS, taxable events include:

  • trading crypto to fiat;
  • trading crypto to crypto;
  • using crypto to pay for real-world goods and services;
  • earning crypto from mining.

What shouldn’t I report?

You don’t owe taxes on your cryptocurrency transactions if they are not considered taxable events. For example, you don’t have to report actions like:

  • giving crypto as a gift (but it still can be subject to the gift tax; as of 2018, gifts cheaper than $15,000 are never taxable, and you can give a lifetime total of $11.180 million in taxable gifts which exceed the annual tax-free limit of $15,000);
  • transferring crypto between wallets or exchanges;
  • buying cryptocurrencies with USD (until you sell or exchange them).

How much should I pay?

Here is a table which illustrates the amount of taxes you owe, depending on your taxable income.

Cryptocurrency taxation: rates, transaction taxes, mining tax

Source: Nerdwallet

It applies to your short-term capital gains, but if you sell your crypto after a year (or more) of holding, it falls under long-term capital gains. The tax rates are different in this case:

Crypto tax rates – COIN360

The latest updates and tax rates for the 2019 tax year can be found here.

But how can I count my crypto income?

First, you should count the cost basis of your crypto assets. In short, it’s the money you spent on buying these assets (including transaction fees and exchange commissions). So, if you spent $1,000 on Ethereum, paid $15 in fees and got 5 ETH coins, the cost basis of each ether would be:

($1,000 + $15)/5 = $203.

Second, you should calculate your capital gain or loss. It’s the difference between the sale price (the money you get for selling your crypto) minus the cost basis. If you sold one of your Ethers for $240, your capital gain would be:

$240 - $203 = $37.

This amount adds up to your taxable income.

What if I trade crypto for crypto?

Then you should learn the fair market value of your cryptocurrencies. It’s the price of your crypto in USD at the moment you sell it. Subtract the cost basis from the fair market value and you’ll get the gain (or loss) that should be taxed. Let’s say, you sell 1 ETH for 8 BNB. Ethereum’s price now is $268.07, and you bought it for $203, remember? So, your gain will be:

$268.07 - $203 = $65.07.

What about cryptocurrency mining?

If you mine cryptocurrency, you should report 2 different taxable events: income from your mined coins (in USD at the moment you receive them) and your capital gains or losses from selling or trading those coins.

For example, you mined 1 ETH. It was worth $200 at that moment. These $200 should be reported as your income and you have to pay income tax on them. If you later sell your ETH for $250, your capital gain is $50, and you should also report it and pay capital gain tax on it. If you sell your ETH for $180 (cheaper than it cost when you mined it), you will experience capital losses of $20. You should report them too, but you don’t have to pay taxes on them.

What forms should I fill out?

There are two forms you should fill out: the IRS form 8949 and the 1040 Schedule D. Your cryptocurrency trades should be reported on form 8949, and your total gains/losses on form 1040.

What can I do if I have hundreds of trades?

It can be challenging to fill your trades manually, so there is special crypto tax software to help you simplify the process. ZenLedger, for example, has partnered with TurboTax to provide detailed tax analysis and automatically transfer your crypto trades to an 8949 form. Other options include CryptoTrader.Tax and TaxAct Cryptocurrency.

I experienced losses, do I still owe taxes?

No. If you incur a loss while trading, you still have to report it to offset your capital gains from other sales (ie., stocks, bonds, or other property). If your total capital losses exceed your capital gains (and the amount of losses is less than or equal to $3,000), it can be used to offset your other income (i.e., your wage income). If the losses are higher than $3,000, the sum over $3,000 will be rolled into the next tax year.

For example, if you gained $3,000 on the stock market, and lost $3,000 trading cryptocurrencies, you wouldn’t have to pay any taxes on your stock market gain, because it would be balanced by your crypto trading losses. And if you lost those $3,000 on crypto trading and you don’t have other capital gains, they would be deducted from your taxable income.

Are there any ways to reduce my taxes?

Yes. There are 2 main types of tax deductions: standard and itemized, but you can’t have both. The standard deduction reduces the amount of your taxable income and depends on your status. In 2019, the standard deduction for singles is $12,200, for married filing jointly — $24,400, for heads of households — $18,350. The itemized deduction allows you to deduct medical and dental expenses, state and local income, sales and property taxes, etc. Tax software will make it easier to choose between the standard and the itemized deductions.

And hold your crypto for at least a year if possible, because long-term capital gains tax rates are lower than short-term.

When should I get my tax report ready?

Apr. 15 was the tax deadline in 2019 in the most states, except for Maine and Massachusetts (it was Apr. 17 there). Since 1955, Tax Day has typically fallen on Apr. 15.

Is it necessary to pay my crypto taxes?

Yes. Non-reporting will be treated as tax fraud and may be subject to penalties, such as a fine of up to $250,000 or 5 years in prison. The IRS claims that crypto taxation is under strict scrutiny nowadays, and the decentralized world isn’t a means of escape fiscal responsibility. In 2018, the IRS made Coinbase disclose the account details of users with $20,000+ transactions who allegedly hadn’t paid their taxes.

Will the IRS issue newer guidelines for crypto taxation in the near future?

Probably. As reported on May 16, 2019, the IRS is working on a new crypto tax guidance right now. As IRS Commissioner Charles P. Rettig admitted, “taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions.” He added that issuing guidance is a priority of the IRS.

The UK

How are cryptocurrencies treated for tax purposes in the UK?

They are regulated by Her Majesty’s Revenue and Customs (HMRC). The policy paper, Cryptoassets for individuals, was published on Dec. 19, 2018. Cryptoassets are treated as cryptographically secured digital representations of value or contractual rights, not currency or money. Selling and receiving cryptocurrency (from transactions, mining or airdrops) is subject to taxes.

Which taxes are applied to crypto?

If you sell your cryptocurrency, you are liable to pay Capital Gains Tax. If you receive cryptocurrency from your employer, or from mining, or from airdrops, you are liable to pay Income Tax.

When is Capital Gains Tax applied?

You will need to pay Capital Gains Tax if you:

  • sell cryptoassets for money;
  • exchange cryptoassets for a different type of cryptoasset;
  • use cryptoassets to pay for goods or services
  • give away cryptoassets to another person.

You won’t need to pay Capital Gains Tax if you:

  • give away cryptoassets to your spouse or civil partner;
  • donate cryptoassets to charity (unless it’s a tainted donation, or you dispose of the cryptoassets to the charity for more than the acquisition cost and realize a gain).

How is the taxable amount calculated?

Cryptoassets are pooled, i.e., each type of cryptocurrency is kept in its own pool. For example, if you own Bitcoin, Ethereum and EOS, you have 3 pools. You should calculate your gains or losses for each pool you own, but not for every transaction. For each pool, the pool allowable cost is calculated (the price originally paid for tokens which are part of the pool). For example, if you buy 10 Bitcoins for £8,000, then 20 Bitcoins for £7,500, and 30 Bitcoins for £7,000, you will have a pool of 60 Bitcoins with a pool allowable cost of £440,000. The allowable cost of 1 Bitcoin will then be £440,000 / 60 = £7333.3. If you later sell all your 60 Bitcoins, you should deduct £440,000 from your gains while reporting. If you sell, for example, 10 Bitcoins, you should deduct £73,333.3 from your gains.

Are there any Capital Gains Tax allowances?

Yes. The Capital Gains tax-free allowance is £12,000 (and £6,000 for trusts). It means that you only have to pay Capital Gains Tax on gains above your tax-free allowance.

What are the Capital Gains Tax rates?

If you are a higher or additional rate taxpayer (i.e., your income is over £50,001), you will pay 20% on your gains. If you are a basic rate taxpayer (your income is up to £50,000), you will pay 10% on your gains and 20% on any amount above the basic tax rate.

What happens if I experience losses?

You can report capital losses and use them to offset capital gains in the same tax year or in future years. Find more details here.

What about taxes on cryptocurrency mining?

Cryptoassets which you get from successful mining are taxable as miscellaneous income depending on the market price (in pound sterling) of the mined coin at the moment when it was mined. Your expenses will reduce the chargeable amount. Find more about miscellaneous income here.

If you decide to sell your mined cryptocurrency later, you may have to pay Capital Gains Tax.

Should I report receiving cryptocurrency from airdrops?

Yes, but there are some exceptions. Income tax may not apply if you get cryptocurrency without doing anything in return (not for completing tasks, sharing info on social media, etc.), or not as part of a trade or business involving cryptoassets or mining. If you are expected to provide something in return for tokens, then they will be subject to Income Tax.

What are the Income Tax rates?

Here are the Income Tax rates for the tax year from Apr. 6, 2019, to Apr. 5, 2020, depending on the income you get.

Cryptocurrency Taxes in the UK: Rates, Crypto mining, Capital Gains Tax

Source: HMRC

When should I report my taxes?

The tax year in the UK is from Apr. 6 to Apr. 5 the following year. You must report by 31 December after the tax year in which you had the gains. You can file your tax report online here.

Russia

How are cryptocurrencies treated for tax purposes in Russia?

Actually, there are still no regulations on crypto and digital currencies. Russia has been trying to pass cryptocurrency legislation for more than a year now but without any success. Russian president Vladimir Putin has set a Jul. 1, 2019 deadline for the approval of a crypto-related bill called “On Digital Financial Assets”.

Crypto Taxes in Russia – COIN360

Vladimir Putin and the Head of the Federal Taxation Service Mikhail Mishustin.

Does it mean that I don’t owe any taxes until then?

No. Despite the fact that there are no existing regulations, you owe 13% on all crypto income, the standard flat tax rate in Russia. People who stay in Russia for more than 183 days a year, are taxed as residents. In other cases, the tax rate is 30%.

Has anybody reported their crypto income yet?

Yes. According to the Federal Taxation Service, a resident of the Altai Republic was the first one who reported his income from trading cryptocurrency during the tax campaign of 2018.

When should I report my taxes?

No later than Apr. 30 of the year following the tax year.

France

How are cryptocurrencies treated for tax purposes in France?

On Apr. 26, 2018, the Conseil d’État published a decision regarding the taxation of Bitcoin (allegedly it also extends to other cryptocurrencies). Previously, the gains from trading cryptocurrencies could be taxed up to 45%. After the Conseil d’État defined cryptocurrency as “movable property”, a lower flat tax rate of 19% was applied.

So, I owe a 19% tax on my crypto gains, right?

Yes. But you also owe the generalized social contribution of 17.2%, which adds up and makes the total amount 36.2%. And if you sell cryptocurrency on a regular basis, not occasionally, the profit you make can be considered as industrial and commercial profit which carries with it up to another 45% taxes in addition to the social contribution. There are also different rates for mining cryptocurrency.

What are the tax rates for crypto mining?

The income from non-recurring cryptocurrency mining is taxed as non-commercial profit. Regular mining can be considered as industrial and commercial profit — just the same as regular trading. Learn more about taxation of non-commercial profits here.

What happens if I experience losses?

The losses can be deducted from capital gains of the same nature in the same year or used to offset profits for the next 6 years.

The tax rate is quite high, should I expect any changes?

Unfortunately, as it was reported in December 2018, the French Parliament refused to ease taxation on cryptocurrency. It was offered to increase the annual volume of transactions that fall under tax exemption (it’s only 305 euros now) and to reduce the income tax rate to 30% from 36.2%, but these amendments were declined.

When should I file my tax report?

The tax year ends on Dec. 31, and you should file your returns before Mar. 1 of the following year.

Japan

How are cryptocurrencies treated for tax purposes in Japan?

According to the Japanese National Tax Agency, crypto gains are considered miscellaneous income and are subject to the Income Tax.

What are the tax rates on crypto gains?

You owe from 5% to 45% on your crypto gains depending on your income amount (see the table below). The residential tax of 10% should be added, so you will finally have to pay from 15% to 55% in taxes.

Crypto Taxes in Japan – COIN360

Are small gains taxable?

No. If your crypto gains do not exceed 200,000 yen (around $1,800), you do not need to report them and pay tax.

Is holding crypto, paying for goods and services with crypto or exchanging crypto to crypto subject to taxes?

Holding cryptocurrency is not taxable. Selling crypto (no matter for fiat or for another cryptocurrency) is taxable. Buying something for Bitcoin or other cryptocurrencies is taxable. The taxable amount is calculated by subtracting the price of cryptocurrency when it was purchased from the selling price (or the price of goods and services which were bought for this cryptocurrency).

What happens if I experience losses?

Unfortunately, you can’t deduct those losses from your income.

Is there any chance that crypto taxes will be reduced?

The Japan Association of New Economy (JANE) asked the Japanese Financial Services Agency to reduce the existing tax rates back in February 2019. It proposed a flat tax rate of 20% (which has now been applied to capital gains from stocks and mutual funds). Unfortunately, no breakthroughs have been made yet.

When should I file my tax report?

You should file your tax returns between February 16 and March 15 of the following year, with two prepayments in July and November of the running tax year. Prepayments are calculated based on the previous year's income.

Final Thoughts

Crypto taxation regulations are vastly different from country to country, but they have one thing in common. Tax evasion is prosecuted. With the proliferation of the crypto industry, more and more countries will be introducing crypto tax regulations. And, what is even more important, they will find more ways to control personal crypto gains. Remember the Coinbase case, when they had to disclose their users’ personal information to the IRS? Seems like it was just the beginning. That is why it’s crucial to understand what you have to report and how much taxes you owe for your crypto activity. And you better do it before the authorities come for you.

Thanks for reading,
The COIN360 Editorial Team