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Top 4 crypto tax mistakes

Top 4 crypto tax mistakes
Last Updated: September 25 2023

Reporting your crypto tax can be a complicated process for many reasons, which is why a solution like CryptoTaxCalculator exists! We aim to make the entire experience as straightforward as possible for you, so you can spend more time on the fun things (like staring longingly at jpegs).

Whether you’re buying crypto, selling, staking, transferring, mining, bridging assets, receiving airdrops, minting NFTs, margin trading, or whatever it is that takes your fancy, there’s the chance that you might make a common crypto tax mistake that could hinder your submission progress. We’ve put this list of the top 4 common crypto tax mistakes people make to hopefully help you avoid falling into the same situation! Let’s dive in.

1. Not including all your necessary data

So, you’re submitting your 2021 tax return and including your crypto activity in your report - why would you need to include transactions from 2018 in your calculations? The answer: cost basis.

When calculating your crypto taxes, it’s crucial to include history from every source that you have activity on. The reason is, if you don’t provide your entire transaction history, there will be no way to determine accurate cost basis for individual transactions. Without an accurate cost basis, your entire crypto tax return could be wrong!

2. “But I didn’t cash out!”

We’ve all heard this phrase before, that one friend who is adamant that unless they cashed their crypto assets into fiat currency, there is no possible way they could have tax obligations. Each region has different guidelines on what is or is not classified as a taxable event, but the majority of jurisdictions include many more types of activity than just ‘cashing out’. As an example, the ATO considers a crypto to crypto swap as a disposal event, and is therefore taxable. Another example is the IRS’ treatment of NFT sales, which they view as a capital gains tax event.

3. Forgetting to list crypto earned as income

Similar to what we mentioned above, every region has different guidelines as to what is classified as ‘ordinary income’. In jurisdictions where certain crypto activities and their respective ‘rewards’ are considered income, you will need to declare it as such for tax purposes. As an example, the IRS classifies crypto earned via mining as ordinary income. Similarly, the ATO has stated that airdrops are to be treated as ordinary income for tax purposes, meaning any Australian resident who has received one has the obligation to declare it as such.

4. Not realizing that claiming capital losses may be a possibility

In some regions, disposing of crypto assets via a sell, swap, spend or loan constitutes a capital gains tax event. If the value of your crypto asset at the time of disposal is higher than the cost basis, this will incur a capital gain. If the value of your crypto asset at the time of disposal is lower than the cost basis, this will incur a capital loss. In regions that recognize capital losses within crypto activity - when an investor chooses to sell their crypto asset at a loss, they can use this loss to offset against their capital gains. If you’re not capitalizing on this opportunity, you could be missing out on the chance to bring down your overall tax bill!

How can CryptoTaxCalculator help?

By providing you with the tools to help track your crypto transaction history, our platform lowers the chances of human error. CryptoTaxCalculator will provide you with alerts when a data source appears to be missing, for example. We also work with local tax professionals in regions around the world to ensure that our algorithm’s rules are up to date with relevant legislation, meaning you will have direction as to what could or could not be a taxable event. Finally, one of our favourite features in the platform is the ‘biggest winners / biggest losers’ widget. It will identify what assets you’re holding have the best and worst growth in value since point of purchase. This can give you an idea on what assets might be relevant when looking into claiming capital losses.

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Samara LeMerle

Strategy and Communications Manager

Samara has been working in the crypto industry for the last 3 years and is passionate about helping other crypto users learn about the tax implications of their trading activity.

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