Disclaimer: This is a sponsored post and the author was paid by Accointing.com for writing & publishing it.
Cryptocurrencies & Taxes
Cryptocurrencies and Taxation – a word combination with which you can scare the majority of cryptocurrency traders and investors. During the first years of Bitcoin and other cryptocurrencies, there were not many people who mind this as an issue. It was this crazy, mysterious “Internet Money” with a heavily increasing price.
Until 2015 e.g. there were just a few hundreds of people who reported their crypto gains to the IRS on a regular base. And tax authorities worldwide did not care much about it – maybe because they were not aware at all. But with the cryptocurrency hype in 2017 this changed all over the world and a lot of cryptocurrency traders are asking theirselves: “How do I have to deal with my cryptocurrency taxes? What are the rules? Is there anything out there what could help me?”
In this article we will look deeper into this topic, provide helpful information as well as showing a way to deal with your taxes properly. Accointing.com is providing tools which will make the process on how to deal with those taxes in a simple way.
What Are The Issues With Taxation of Cryptocurrencies?
Law and taxes are not an area where most of us have deep knowledge. Nor are most of us interested in gaining some knowledge in it because instead, you could look for the next crypto gem, or watching the Bitcoin chart to place your next trade, right?
Most issues of the taxation come with the fact that it is complex, more or less, depending on the country where you are based. Complicated forms and uncertain tax rules can get you in a state of “What should I do? What do I have to do?!”. Moreover, there is a not so small group of crypto enthusiasts who are not aware (or do not want to be aware) of that they even have to pay taxes on the profits they have made.
But all countries that I am aware of have somewhat similar rules, when it comes to the question of “What is a taxable event?” – the answer is simple: All cryptocurrency trades and sales are taxable. Means it is a taxable event when you exchange Crypto ⇔ Crypto, Crypto → FIAT or purchase goods/services with Crypto. All of those actions are taxable, in one form or another.
Plus, a common disbelief in the community is that the tax authorities could not track cryptocurrency purchases and trades. This is a dangerous one – because in fact it is the other way around. Bitcoin is operating on a public ledger. Every transaction can be traced. And exchanges like Coinbase can be forced to inform the authorities about the transfers of their customers.
Crypto Taxes in Different Countries
USA: The IRS decided in their “Guidance on Virtual Currencies” that cryptocurrencies are not actual currencies, but property, leading to the circumstance that you have to pay capital gains tax and not income tax. Then there are two different forms of capital gains taxes in the US, a.) short-term and b.) long-term taxes.
The difference lays in the timeframe you are holding a certain cryptocurrency position. Is it below one year it counts to short-term taxation, is it over one year to the long-term taxation. The rates for the short-term one directly apply to your tax bracket of the state you are living in. Usually the taxes on long-term positions are lower.
An exception where cryptocurrency is taxed with income tax is when you are an employee who gets (partially) paid in crypto. For the correct taxation in the US you need two formulas, 1.) “Form 8949” and “Form 1040 Schedule D”. Therefore you need to collect all relevant informations, including a complete list of all your trades with date, entry/exit price, fees, net gain/loss.
Europe: Worldwide and especially in Europe there are very different rulings when it comes to the classification of cryptocurrencies and the applying tax rules:
While it is “private money” in Germany, without capital but income tax up to 45% on profits, but tax-free if you hold a position for at least one year, it is a “foreign currency” in Switzerland with no capital gains tax and no applicable sales tax. Unless you are considered a “professional working trader”, then completely different rules apply. And in the UK it is an asset OR “private money”, clarification about this question case-by-case. The classification of “what are taxable events?” is here still the same as described above.
Who Can Help me With my Crypto Taxes?
The first answer to this in your head might be “a tax consultant”. And, surprise surprise, this is right. But there is another way. Within the last years there were more and more crypto tax tools popping up Some of them incubated by business people who saw the issue and the future market potential, some others created from scratch by people like us, the cryptocurrency community as traders and investors.
One of those tools is “Accointing” based in Switzerland. Accointing started out of a personal pain for two different situations. Dennis, living in Germany, had gone through the mess of filing German taxes. In Germany with short/long term gains, staking, airdrops and all other rules figuring out how to actually do taxes was extremely difficult.
Dennis tried out the main accounting/tax reporting tool in crypto but was not satisfied with the fact that numbers were wrong, everything was tracked in a single depot. Using excel was of course not an option either. On the other hand Yann wanted to have a system for proof of funds and ownership. Tracking everything manually especially with coin rebrands, using lots of different exchanges and wallets this became extremely tedious.
After both Dennis and Yann worked with accountants, they decided to build a system for themselves, a simple tool without a frontend. Talking with people from the crypto community they soon realized other people would be interested in having an accounting and tax reporting tool that worked. What was extremely important for Yann and Dennis was that the UI/UX was top notch, they both believe in the larger adoption of crypto, and in order for that to happen tools need to be user friendly for techies and non techies.
What is Accointing Offering Exactly?
Currently Accointing offers several tools. The major one is focused on the ease of use of importing all your cryptocurrency data which likely lies on several exchanges and wallets. Through this easy importing the other major tool is the tax optimizer which uses an algorithm to let you know which of your BTCs makes most sense to sell based on short and long term holdings. You do not want to be selling a long term position if you can report a loss with a short term position..
Moreover they offer a bunch of other functionalities:
- Tracking: Track all your crypto assets and their location in real time; Single & Multiple Depots; Classification into OTC trades, mining, ICO’s; Flagging system for potential errors
- Analyzing: Visualization of profits, interactive holding periods analzyer, avg buy & sell prices
- Classification: Trades, payments, income, airdrops & gifts
Accointing is really one of the tools you should watch out for. The fact that it was created by people who exactly understand the issues when it comes to handle crypto taxes is a big plus against competitors.
I will further test the tools they are offering and write a step-by-step review of all the functions. In addition we will dive even more into concrete crypto tax terms & rules (like FIFO, LIFO) in the following articles.