Your Essential Cryptocurrency Taxation Guide for 2019
Wondering how to calculate tax on your crypto assets? Our detailed guide will help.
The growing popularity of cryptocurrencies has undoubtedly shaken up the global financial system, with governments around the world wrestling in a variety of ways with the economic ramifications. One of the most important and obvious topics on the agenda is taxation, since states are inclined to collect what they believe they’re owed on earnings made in the cryptosphere. In recent years, a slew of regulations have either been glancingly touted or come into force, in many cases generating puzzlement rather than comfort. However, although not every government has finalized a coherent position on cryptocurrency tax, the advice from experts is to diligently maintain records on gains made and losses incurred from trading activity.
Even if the tax authorities in your country are not yet crystal-clear on the nature of your responsibilities, imagine being asked – next year or the year after – to account for profits earned from trading digital tokens in the recent past. Can you casually produce your accounts, proving that tax has been calculated on your trading activity? Or, having relied on a combustible mixture of ignorance and arrogance, will you be left to splutter a half-baked excuse?
Familiarizing yourself with crypto accounting best practices and procedures is no longer an option – it’s a prerequisite. You don’t have to be a certified CPA to grapple with the subject matter either. All you have to do is regularly maintain your accounts, assets and information in preparation for filing an annual tax return. Doing so will keep the authorities off your back and confer peace of mind throughout the year. With the aid of the following guide, managing your cryptocurrency taxes will be a breeze.
DIY, CPA or Virtual Crypto Tax Tool?
Well-organized autodidacts who quickly process information and have enough time on their hands to brush up on the necessary regulations and filing procedures may wish to handle their tax affairs independently. They deserve plenty of credit, because it can be a substantial undertaking if there are numerous accounts to consider. For example, you’ll need to gather all your wallet public keys and exchanges’ CSVs and APIs to assess your cryptocurrency transactions from throughout the year. With a better understanding of your current capital gains, you’ll then have to ponder which method of tax accounting is most appropriate (FIFO, LIFO, etc).
Recruiting a CPA isn’t a bad idea, providing you can justify the outlay. There are a number of accountancy firms now specializing wholly or partly in cryptocurrency, so if you do decide to go down that route, take your time, read independent reviews and schedule a meeting to discuss exactly what your CPA-in-waiting could do for you. Naturally, they will pitch for your business and explain many ways in which they can help you reduce your liabilities, including by offsetting capital gains tax with losses incurred in the past 12 months.
Utilizing some form of crypto tax software is an increasingly popular choice, for obvious reasons: much of the laborious work is automated and it’s cheaper than hiring a CPA. Blox is one such tool for managing cryptocurrency taxes. Not only does it enable you to sync unlimited wallets and exchange accounts, but it gives you an insightful real-time dashboard, the better to view balances, analytics, historical data and asset performance. Classifying digital assets and producing financial reports for accounting purposes is made simple, and with TouchID and FaceID privacy controls, you can guarantee that your sensitive documents are kept secure. It’s been created with exchanges, crypto-centric accounting firms, modern financial advisors and individual investors in mind. It can be a lifesaver, allowing you to focus more of your energies on growing your actual investments.
Stay On Top of Your Crypto Accounts
It is not uncommon for traders to own multiple accounts on various international exchanges, and to transact myriad digital assets on a daily basis. This creates the potential for chaos, the digital equivalent of a disorderly desk strewn with paper documents. Consequently, it’s vital to organize all your accounts, exchanges and wallets, and to have a reliable record of your usernames and passwords. You’ll need a comprehensive record of your transactions when it comes time to file your tax return, and if you delegate this duty to a CPA, they will ask for it straightaway. Failing to stay on top of your accounts is only postponing the inevitable. Incidentally, it’s also a good idea to retain copies of your I.D. and other legal documents.
Familiarize Yourself with Local Tax Laws
It’s no secret that tax laws differ from country to country, and this is especially true of cryptocurrency tax: some countries such as Germany have decided, for the time being at least, to exempt digital asset investment from tax altogether. Others, like the United States and United Kingdom, have been more assertive – although their regulations remain a work-in-progress.
Depending on the regulations in your homeland, you may be due tax when you:
- Exchange cryptocurrency for fiat
- Pay for goods and services using an e-wallet
- Receive cryptocurrency as a means of payment
- Swap one cryptocurrency for another
- Receive mined or forked cryptocurrency
Providing you have kept proper records, calculating tax on your trading activity is, if not exactly easy, manageable – all the more so if you have retained the services of a CPA familiar with crypto assets, or employed specialist tax software.
In the end, only you will know what’s right for you. The important thing to remember is that, provided you have made an effort to be transparent and follow the correct procedure, your crypto accounting experience will be a mere formality.