Résumé

In many countries, cryptocurrencies are subject to tax. Trading, spending or selling your cryptos are often taxable events. To calculate your taxes, you will need to take into account your capital gains and losses. You may also be required to pay income taxes if you receive cryptocurrencies as salary.

Each jurisdiction is different, so be sure to consult an accountant. Tax authorities often cooperate with cryptocurrency exchanges to track cryptocurrency transactions. If you try to avoid taxes, you can face financial penalties and even harsher penalties.

Introduction

If you HODL or trade, at some point you will likely have to pay cryptocurrency taxes. The exact amount varies from country to country, but it is common for tax authorities to consider cryptoassets as capital assets. It's a legal obligation to pay taxes, so it's important to get it right.

In this article, we'll cover some basic principles that apply to cryptocurrency taxation in general. As the regulatory framework for cryptocurrency taxation differs between countries, we always recommend consulting a local accountant.

Do I have to pay taxes when I buy or sell crypto?

There is no simple answer to this question. Your taxes will depend on your location, how long you've held your crypto, the type of business you do, and other factors. In general, you will probably have to pay taxes or offset losses on the sale, but not on the purchase.

Taxes related to cryptocurrencies are not always easy to understand. Since it is a relatively new asset, tax authorities are still developing regulations on cryptocurrencies. However, it is your responsibility to track your taxable gains and losses and pay the correct amount of tax, in accordance with your country's regulatory framework.

What is a taxable event?

A taxable event is a transaction or activity on which you must pay taxes. These events are not universal. An event that is taxable in one country may not be taxable in another. Generally, transactions involving the sale of raw materials, investments and other capital assets are all taxable. Purchasing digital currencies like Bitcoin or BNB with fiat currency should not be a taxable event. However, selling or trading your cryptocurrencies is likely to be subject to tax.

A taxable event results in capital gains (profits) or capital losses. If you like an asset you own and trade it for a profit, you have earned capital. If you trade or sell this asset at a loss, you have suffered a loss of capital.

Again, capital gains taxation depends on your local taxing authority. You can deduct capital losses from your capital gains to reduce your taxes. Your overall tax amount depends largely on the sum of these amounts. To facilitate this calculation, taxpayers should note the date, cost basis (purchase price), sales value, and fees associated with all trading transactions.

What are taxable and non-taxable events?

Generally speaking, taxable events include:

1. Sell cryptocurrencies to get fiat currency (e.g. USD, CAD, EUR, JPY, etc.).

2. Trade one cryptocurrency for another cryptocurrency (e.g. BTC for ETH).

3. Spend cryptocurrencies. In jurisdictions such as the United States, United Kingdom, Canada and Australia, direct spending on cryptocurrencies for goods or services may incur taxes if you have made gains.

4. Receiving cryptocurrencies following a fork, airdrop or mining activity.

In contrast, the following are generally not considered taxable events:

1. Buy cryptocurrencies with fiat currency (except in cases where the purchase price is less than the fair market value of the currency purchased).

2. Donate cryptocurrency to a tax-exempt organization.

3. Offer cryptocurrencies under a specific limit.

4. Transfer cryptocurrencies from a wallet you own to another wallet you own.

How are cryptocurrencies taxed?

Bitcoin and the official classification of other cryptocurrencies in a country will determine how they are taxed. Tax authorities generally consider cryptocurrencies to be a capital asset and not a currency. If your country does not have specific cryptocurrency tax laws in place, expect your cryptocurrency profits to be taxed according to their official designation (if applicable). Some jurisdictions take a much simpler approach. Germany, for example, does not tax crypto held for more than a year. Malaysia, Portugal and Singapore also have very liberal cryptocurrency tax rules.

Your bitcoin or cryptocurrency income may also be counted toward income tax. If you are a full-time employee, freelancer, or cryptocurrency trader paid in cryptocurrencies, you are likely required to pay income tax on your cryptocurrency earnings. Again, the income tax rate generally depends on how much you earn.

Below a certain income threshold, you may not pay any tax on your income. You will generally find different income brackets, with higher brackets experiencing higher tax rates. If your primary income comes from trading, find out whether you are subject to capital gains taxes or income taxes.

How do I calculate my taxes?

If you bought cryptocurrencies, HODLED them, and later sold them, your tax liability should be fairly easy to calculate. Let's look at a simplified example based in the United States. First, we need to calculate our capital gains or losses in US dollars. Here is the formula:

Fair Market Value – Cost Basis = Capital Gain/Loss

Fair market value is the current cash market price you would find on an exchange like Binance. The cost basis is the initial price you paid for the asset, plus any fees.

Imagine you bought 2 BTC for $10,000 and sold it two years later for $30,000. You have now realized $40,000 in capital gains:

$60,000 (fair market value) - $20,000 (cost basis) = $40,000 (capital gains)

In the United States, capital gains tax depends on your total taxable income, your tax status, and the time you have invested in the asset. If you have held your crypto for more than a year, you are subject to long-term capital gains tax.

The amount you pay depends on your total taxable income. This figure includes your capital gains. If you already have $50,000 of taxable income, your total taxable income will be $90,000, including your capital gains. According to the Internal Revenue Service chart below, you will pay a tax rate of 15% on your cryptocurrency earnings.

If you trade regularly, your calculations will require some work. It's easier to understand the tax consequences of buying and selling fiat, but it becomes more complicated when trading one cryptocurrency for another. Let's say you traded BNB and Ether (ETH). Here is your trading history:

In our example, exchanging your BNB for ETH counts as a taxable event, so you need to calculate your capital gains and losses. Your capital gains are calculated as follows: market value ($500) - cost basis. But what transaction do we use as the cost basis? After purchasing BNB previously at two different prices, you need to make a decision.

Accountants use two different methods to calculate this: first in, first out (FIFO) and last in, first out (LIFO). The FIFO method is the standard for most countries, while the LIFO method is generally only used as an alternative method in the United States. With the FIFO method, the asset you purchased first is sold or traded first. In our case, we would first sell the BNB purchased for $150.

Using FIFO, the cost of our taxable event is $150. We therefore have $350 left in capital gains to pay according to our formula:

$500 (fair market value) - $150 (cost basis) = $350 (capital gains)

With the LIFO method, the most recently purchased asset is sold or traded first. The LIFO method instead uses purchasing 1 BNB for $300 as its cost basis. In this case, your capital gains would be $200.

$500 (fair market value) - $300 (cost basis) = $200 (capital gains)

You can deduct your capital losses from capital gains to calculate the amount you have to pay during a tax year. In many countries, short-term capital gains and losses (usually holdings of less than one year) are treated separately from long-term capital gains and losses.

How can tax authorities find out about my cryptocurrencies?

Tax authorities such as the IRS, ATO, CRA, HMRC and others track cryptocurrency transactions and enforce tax compliance. Large cryptocurrency exchanges are also cooperating with the authorities.

Governments use data analysis tools such as Chainanalysis to identify cryptocurrency users. With enough information, they can link blockchain transactions from regulated cryptocurrency exchanges to personal cryptocurrency wallets. These analyzes even include several layers following the withdrawal of exchanges to combat tax evasion.

The IRS and other tax authorities also partner and share data with other government agencies, academic institutions and governments around the world to exchange information on the use of cryptocurrencies.

What happens if I don't file my taxes on cryptocurrencies?

In many countries, tax authorities require you to file your tax return regularly. This can be the case even if you owe no taxes or will receive a refund. Failure to file can result in fees, penalties, interest, refund forfeiture, restitution, and even jail time.

Binance Tax Filing API Tool

The Binance Tax Reporting API tool lets you keep track of your crypto activity. You can generate a report via the API and use it to ensure you meet your jurisdiction's requirements. For more information, please see How to file a tax return with my Binance account information.

To conclude

It is essential to file your taxes correctly. This is why we recommend that you seek professional help to complete your declarations if you have any doubts. This may be the case if you have been trading and not just investing. The tax consequences of regular trading are much more complicated. But above all, your tax situation strongly depends on your place of residence. Please keep this in mind when using our information.

Disclaimer

Binance does not provide tax or financial advice. Depending on the country's regulatory framework, when you trade commodities and your activity generates capital gains (or losses), you will have to pay taxes as required. The regulatory framework for the taxation of cryptocurrencies differs from one country to another. We therefore strongly advise you to contact your accountant to obtain further information on your personal tax situation. It is your personal responsibility to select the correct tax jurisdiction that applies to you.