Disclaimer: This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.
Tax rules vary for cryptocurrencies vary by country. Please familiarize yourself with the tax rules that apply to you based on your country/jurisdiction.
Most countries treat cryptocurrencies as capital assets. Therefore, if the asset appreciates in value and you sell/trade/use it for profit, the gains are taxed like capital gains. If the asset depreciates in value and you sell/trade/use it at a loss, you may be able to deduct the losses against other capital gains to reduce your taxes.
The amount of tax that you owe depends on how much capital gain/loss there has been on the asset, how long you have held the asset, and the specific regulations in your country/jurisdiction. Because each taxable event may create a capital gain, you need to know the date, cost basis, sale value, and any fees associated with each transaction.
Generally speaking, these are considered taxable events:
- Selling cryptocurrency for fiat currency (i.e. USD, CAD, EUR, JPY, etc.)
- Trading cryptocurrency for other cryptocurrency
- Using cryptocurrency to buy a good or service
- Receiving cryptocurrency as a result of a fork or from mining
On the other hand, the following are generally not considered taxable events:
- Buying cryptocurrency with fiat currency
- Donating cryptocurrency to a tax-exempt organization
- Gifting cryptocurrency to anyone (if the gift is sufficiently large it may trigger a gift tax)
- Transferring cryptocurrency from one wallet that you own to another wallet that you own
For more detailed information, please review the following resources on our blog: