- Cryptocurrency holders and investors may need to rethink their approach to their taxes.
- One thing to be aware of during tax season is when the tax year starts and ends.
- According to Koinly’s Head of Tax, taxable moments are exchanging, selling, gifting, and spending crypto.
Tax time is edging closer, and for many, this will mean the age-old routine of gathering receipts and getting finances together in a scramble to get everything ready for accountants. However, cryptocurrency holders and investors may need to rethink their approach to their taxes.
This is mainly because crypto is now taxable in most parts of the world. According to Tony Dhanjal, the head of Tax at crypto tax accounting platform Koinly, there are four main “taxable” moments that everyone dabbling in crypto will encounter throughout their crypto investing journey. These taxable moments are exchanging, selling, gifting, and spending crypto.
Dhanjal went on to explain that “you’ll pay income tax when you’re seen to be earning an additional income through crypto. For example, from mining crypto, staking rewards or partaking in various decentralized finance activities.” Failing to report your crypto activity during tax time or submitting a deliberate understatement can result in a severe penalty.
One thing to be aware of during tax season is when the tax year starts and ends. Depending on the crypto tax status in their country, crypto dabblers may need to report all crypto trades and transactions that were made during this period.
Crypto investors may also be required to keep a detailed record of the dates and prices of their cryptocurrency purchases and the prices and dates at which they sold (if applicable).
Lastly, investors must know how many crypto exchange platforms they use, how many wallets they have, and what the respective crypto and fiat balances are.
You can get an exemption from capital gains tax if you hold cryptocurrency as a personal use asset. If you purchase no more than $10,000 of cryptocurrency to directly buy something else with crypto, you’re eligible for this exemption.