Cryptocurrency is all the hype nowadays. Millions of people in this british bitcoin profit site are buying and selling cryptos for various purposes. Some are buying it as an investment to earn a profit, while some use it for purchasing goods and services, and some are using it for mining. But it is important to note there could be an “income” earned while trading them and that income could be subject to tax.
For the calculation of taxes, it is important to determine whether an event is taxable or not. Here is a list of some of the common tax events:
- Sale of crypto– When you sell cryptocurrency for a profit, the tax will be levied on it. It will either be at a short or long-term rate.
- Trade and exchange of crypto– exchange of cryptocurrency is a taxable event.
- Trading a stable coin – Tax is applied when a cryptocurrency is traded for a stablecoin.
- Buying with cryptocurrency– When you make a payment in the form of cryptocurrency, tax will be applied based on the price of the crypto during the time of purchase.
- Mining crypto– Any profit that is generated by the mining of cryptocurrency will be taxed at the time of its sale.
- Bonuses, perks, and receiving payments– Getting Bitcoin as a bonus or perk, or getting paid in Bitcoin, may come under income tax.
- Buying crypto– You do not need to pay tax on buying and holding crypto.
- Crypto as a gift– When you give crypto as a gift to your friends or family, it is not considered a taxable event.
How to report cryptocurrency transactions?
Before filing the tax, you need to report your crypto transactions as business income or capital gains.
In the form of capital gains- If your crypto-transactions are recorded in the form of investments, any profit or loss incurred on their sale needs to be considered capital gains or loss. If the sale value is more than the cost, it will be considered ‘capital gain’, whereas if the price is higher than the value of sale, it will be considered ‘capital losses’. Such profit will be categorized as long term capital gains if the crypto assets are held for a period of more than 36 months, and hence will be taxed at 20%. If the crypto-assets are held for a period that is less than 36 months, it will be treated as short-term capital gains. The rate for short term capital gains tax will be according to the personal taxation rates.
In the form of business income: If cryptos are held in the form of stock-in-trade, then it will be reported as business income and will be taxed accordingly. This will come under the ambit of Goods and Services Tax. All kinds of direct as well as indirect expenses will be deducted from the gains on the sale of crypto.
Estimate your crypto taxes by following these steps:
- Find out your profit made by selling crypto
In order to calculate your total gains, you need to multiply the sale price of your crypto by the quantity of the coins you sold. For example, If you sell 4 bitcoin with a selling price of $20,000, then the total sale amount is $20,000 x 4 = $80,000.
Now, deduct the amount you paid while buying the crypto plus any fees incurred while selling it.
Finally, you’ll get the amount of profit you earned.
- Find out if its a short-term or long-term gain
Calculate your holding period for crypto by the date on which you bought it to today’s date. This will help you to find out if you have a short-term or long-term gain. The tax rate will rely on that period.
Calculating crypto taxes can be a complex process. But, at the same time, it is very essential to determine them in the correct manner to avoid fees and penalties. For that, plenty of software and tools are made available on the internet. Using a tool or software to track your crypto transactions can help you file your taxes in an accurate manner, by figuring out your exact profit and losses.