How to file taxes on Cryptocurrency in 2023

ByteX
7 min readMay 15, 2023

Cryptocurrency has become an increasingly popular investment option, with many individuals and businesses buying, selling, and trading various digital currencies. However, as with any investment, it’s important to understand the tax implications of your cryptocurrency activities.

Each country has its own rules and regulations when it comes to cryptocurrency taxation, and it can be challenging to navigate the complex landscape.

In this blog, we will provide an overview of the tax requirements for cryptocurrency in various countries.

Should I file taxes for my cryptocurrency?

The answer is yes. When sold, cryptocurrency is subject to capital gains tax; when earned, it is subject to ordinary income tax. The American infrastructure bill requires all cryptocurrency exchanges to provide customers and the Internal Revenue Service (IRS) with 1099-B forms, but this may cause additional tax reporting problems due to cryptocurrency’s unique properties.

The United States IRS treats cryptocurrency as property for tax purposes, which means that if you sell or exchange cryptocurrency for a profit, you may need to pay taxes on those gains.

It is also important to report your cryptocurrency transactions on your taxes if you have realized gains or losses from buying, selling, or exchanging digital assets. Exchanges usually fail to match the high standards of traditional investment platforms.

To further expand its tax base and bolster the enforcement of crypto taxes, the IRS is requesting an improved budget. All crypto use cases are subject to digital asset taxation, such as buying coins and using them to pay for goods and services. Additionally, salaries and wages paid in crypto must be reported and taxed accordingly.

When you make money by mining cryptocurrencies, it is taxed as income while it is being mined but as capital gains when it is later sold. Keeping good records of cryptocurrency transactions is essential to reporting accurately on your tax return. This includes keeping track of the date of each transaction, the type and amount of the involved cryptocurrency, and the value of the cryptocurrency at the moment of the transaction, expressed in U.S. dollars or as necessary.

5 easy steps for reporting cryptocurrency taxes

The process for filing taxes is similar to filing tax returns on traditional capital assets like bonds or stocks. For experts, reporting cryptocurrency on taxes typically only requires five simple steps; for beginners, it might take more steps, but don’t worry, we’ve made the whole process as simple as possible.

Step 1: Calculate the Capital Loss and Gain

You must keep track of how the value of your assets has changed over time in order to determine capital gains and losses for cryptocurrencies. The cost basis is the price you paid to buy the tokens, whereas the value at sale is the amount you received when you sold or traded your assets.

The cost of the cryptocurrency is subtracted from the sale price, yielding a capital loss or gain. The difference, which is a capital loss if the cost basis exceeds the sale price, must be recorded and reported because it could be used to offset capital gains from other transactions or lower your taxable income, subject to certain restrictions. Losses and gains from capital are taxed.

Step 2: Fill Out the Crypto Tax Forms — IRS Form 8949

It is possible to report and pay taxes on capital gains or losses from cryptocurrency transactions using a crypto tax form. For instance, the Internal Revenue Service (IRS) in the United States mandates that taxpayers use Form 8949: Sales and Other Dispositions of Capital Assets to report capital gains and losses from cryptocurrency transactions on their tax returns. The following information must be reported on Form 8949: filling out of short-term (less than one year) trades for WETH, BAT, and STETH is described in the form 8949 that is provided below. You can also complete Form 8949 for long-term (more than a year) trades in the same way.

Step 3: Transfer Totals from Form 8949 to Schedule D

The total gain or loss from all of your cryptocurrency transactions must be transferred from Form 8949 to Schedule D (Form 1040 or Form 1040-SR), after you have completed the form.

The net capital gain or loss on assets within a specific taxable period, which is the difference between your total capital gains and total capital losses as transferred from Form 8949, is reported and calculated using Form Schedule D.

Depending on the circumstances: Schedule D (Form 1040) allows you to fill in gains and losses from estates, partnerships, and trusts from Schedule(s) K-1 aside from the short and long term.

Step 4: Report Cryptocurrency Earnings

Profits from cryptocurrency transactions are typically categorised as capital gains, but there are some situations in which they are considered ordinary income, such as when they come from crypto lending, mining, staking, airdrops, referral bonuses, or wages. Depending on the type of income, a different reporting procedure will be used.

Step 5: Complete Your Crypto Tax Return

It’s time to submit your tax returns to the IRS after completing Form 8949, moving the total calculations to Schedule D, and declaring your cryptocurrency income on the proper form.

How to report Bitcoin on taxes

The tax laws governing cryptocurrencies vary from nation to nation. The way that a cryptocurrency is used and the specific circumstances it is in determine how it is taxed. While some nations have made explicit mention of the taxation of cryptocurrencies, others have not yet published official guidelines. Let’s examine the methods used in some EU countries and Asia and compare them to what is possible in the US.

How to report crypto taxes around the world

Germany

The Bundeszentralamt für Steuern (Federal Central Tax Office or BZSt) recognizes that profits from trading cryptocurrencies such as Bitcoin, Binance Coin, Ethereum, and the like are comparable to proceeds from selling artworks and other valuable items. Yet, in other cases, income made from disposing crypto assets may not be subject to taxation.

The following conditions apply:

  1. If an individual has had Bitcoin and co. in custody for more than 12 months, They can be used or sold tax-free.
  2. If crypto is a source of income, the tax-free holding period is bumped to 10 years
  3. If the profits realized are tax-free below 600 Euros, the dividend exceeds the limit of 600 Euros, and taxes must be paid on the entire profit.
  4. Cryptocurrencies kept for more than a year are not excluded from taxation for business entities.

India

The Indian authorities have recognized the existence and use of cryptos and established a new tax finance act, but the ITR-2 and ITR-3 forms do not provide dedicated space for reporting crypto income or gains.

UK

The UK does not have a Bitcoin or cryptocurrency tax, but individuals must pay either a Capital Gains Tax or an Income Tax on any profits they make from their cryptocurrency holdings. To report cryptocurrencies in the UK, follow this procedure and check HMRC’s website for more information.

Conclusion

It’s crucial to stay up-to-date with the tax requirements in your country. By following the tips outlined in this blog, you can ensure that you stay compliant with the law and avoid any potential penalties or legal issues. Remember to keep accurate records of all your cryptocurrency transactions, and seek professional advice if you’re unsure about any aspect of cryptocurrency taxation. With the right knowledge and preparation, you can continue to invest in cryptocurrency with confidence, knowing that you’re meeting all your tax obligations.

Important Disclosures:

Certain statements in this document might be forward-looking statements, including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, “target”, “seek”, “will” and similar expressions to the extent they relate to the material produced by Bytex staff member. Forward-looking statements are not historical facts but reflect the current expectations regarding future results or events. Such forward-looking statements reflect current beliefs and are based on information currently available to them. Forward-looking statements are made with assumptions and involve significant risks and uncertainties. Although the forward-looking statements contained in this document are based upon assumptions the author of the material believes to be reasonable, none of Bytex’s staff can assure potential participants and investors that actual results will be consistent with these forward-looking statements. As a result, readers are cautioned not to place undue reliance on these statements as a number of factors could cause actual results or events to differ materially from current expectations

The commentaries contained herein are provided as a general source of information based on information available as of MMMM DD, 2022. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or relevance of the information contained here. ByteX. makes no representation or warranty to any participant regarding the legality of any investment, the income or tax consequences, or the suitability of an investment for such investor. Prospective participants must not rely on this document as part of any assessment of any potential participation in buying and selling of virtual currency assets and should not treat the contents of this document as advice relating to legal, taxation, financial, or investment matters. Participants are strongly advised to make their own inquiries and consult their own professional advisers as to the legal, tax, accounting, and related matters concerning the acquisition, holding, or disposal of a virtual currency. All content is original and has been researched and produced by ByteX.

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