Crypto Tax Season

Market Meditations | February 25, 2021

Before we begin, let’s ensure full transparency: we are not financial advisors or tax professionals, further to that we hold no relevant qualifications. For any legal, financial or tax related advice speak to a professional.

Tax season is a good reminder for us traders and investors that there is more to Bitcoin than buying it. We need to make sure we have appropriate measures in place not only for trading, but for accounting and security.

Kathryn Hauer, a certified financial planner, states “It could be a real tax mess for folks who try to hide crypto earnings from the IRS.” But tax laws will differ based on where you live and the regulation your country’s government has put into place. What we’ve written here are simply the basics you need to know. One of the most important things, however, is knowing which transactions are taxable and which transactions are not.

Taxable transactions include:

  • Selling cryptocurrency for fiat (selling 1 BTC for $50,000)
  • Exchanging one cryptocurrency for another (selling 1 BTC for 31 ETH)
  • Buying goods or services with cryptocurrency (selling 0.5 Bitcoin for a new car)
  • Receiving any cryptocurrency (gifts, mining rewards, staking reward, etc)

Non taxable transactions include:

  • Buying cryptocurrency with fiat (using $50,000 to buy 1 BTC)
  • Transferring cryptocurrency between wallets (sending 1 BTC you own from one exchange to your hardware wallet)

Here are some additional things to consider that will vary depending on your situation.

  • Amount of tax that you have to pay (i.e. tax rate)
  • When you must pay that tax (i.e. annually, quarterly, etc)
  • What forms you must submit to pay the tax