Income tax filing season is fast approaching, and it often takes the form of an obstacle course. As you surely know, capital gains on cryptocurrency sales must be declared to the tax authorities, and they are not known for their leniency.
While trading is made intuitive by the various exchange platforms, the frequency with which you trade can be multiplied. This activity is so enjoyable, but it is also painful when it comes time to report. You will have to calculate your capital gains in order to make them readable by the tax authorities.
To save you many hours of intense struggle, Trading du Coin has designed for you a capital gains calculation software that will greatly facilitate your life.
The frequency with which you make your transactions can be multiplied. This activity is so enjoyable, but it is also painful when it comes time to report. You will have to calculate your capital gains in order to make them readable by the tax authorities…
To save you many hours of intense struggle, we have conducted our investigation to find the best elements to make your life easier.
The class of digital assets, to speak of crypto-currencies like Bitcoin and Ethereum, entered the regulatory framework on January 1, 2019. To be fiscally compliant, a specific scale for cryptos is now available by the income tax digital currencies.
WHICH TRANSACTIONS ARE TAXABLE?
Before talking about taxable transactions, let’s already take stock of what are “digital assets” for the tax authorities and that we will most often call “crypto” in these lines for the sake of simplicity. Crypto-assets are indeed numerous but not all of them fall under the specific regime introduced in 2019.
Are therefore concerned:
all crypto-currencies, including stablecoins (well… a priori! but for your sanity I will spare you the legal debates on the subject)
and tokens, defined as “intangible assets representing rights”, and essentially including tokens issued during ICOs
What about NFTs, the Non-fungible tokens, popularized by CryptoKitties and which the press recently echoed with the sale by Jack Dorsey of his very first tweet? As their name suggests, these tokens are not interchangeable. Because of this uniqueness, they do not constitute a crypto-currency. And although they are called “tokens”, they do not seem to have the characteristics of one: a CryptoKitty is indeed an object in itself. Certainly incorporeal, but an object nonetheless. Some NFTs could conversely be qualified as tokens in the tax sense, but here again, for your sanity, let’s keep it simple: NFTs are not “digital assets” in the tax sense.
It should be noted that the mere holding of cryptos is not taxable. What is taxable are transactions that may generate a capital gain, namely:
The transfer of a digital asset in exchange for a legal tender currency
The exchange of a digital asset for a good or a service
The exchange of cryptos with a balance
You are therefore taxable when you exchange your cryptos for fiat currency, even if your money remains on the exchange platform.
You are also taxable whenever you use cryptos as currency to acquire a good or service.
On the other hand, you are not taxable if you exchange cryptos between them. Unless this exchange is accompanied by a balance, that is, a sum of money. Indeed, an exchange of cryptos without a balance is a simple intercalary transaction, which will be taxed when the crypto received in exchange will be in turn exchanged for money, or will be used as a payment currency for a good or service.
NB: Any capital gains are exempt as long as the total amount of disposals (in the broadest sense) made during a tax year does not exceed 305€. The taxpayer will therefore not have to calculate his capital gains or losses but will still have to comply with some reporting obligations (see below).
Taxation only for property
After a few mistakes, the 2019 finance law has introduced a specific taxation regime for digital assets. This regime, consistent and aligned with the taxation of securities, consists in taxing at a global rate of 30% (12.8% flat tax and 17.2% social security levies) the global capital gain realized in a tax year.
It should be noted that this system only applies to capital gains realized on an occasional basis by individuals in the context of the management of their private assets.
If, on the other hand, the capital gains result from the usual exercise of a purchase activity with a view to reselling cryptos, it is no longer this flat tax of 30% that applies, but the industrial and commercial profits regime (BIC). In this respect, and as in the case of traditional securities, the administration will take into consideration a whole range of indicators to assess whether the trading activity is occasional or regular: the quantity and scale of the operations carried out, the sophistication of the techniques used, the know-how deployed, etc.
And if the profits made are not the result of a trading activity, whether occasional or regular, but are the counterpart of your mining activity, then you are subject to the non-commercial profits regime (BNC).
Crypto as payment (Currency)
If you received any virtual currency as pay for work performed, you are expected to report that, as well.
The difference is that, in that scenario, the crypto is treated like wages — which are subject to ordinary income taxes, as well as self-employment taxes for those who are paid as a nonemployee and receive a 1099-NEC from the business that paid the crypto, Hauer said.
Again, even if you don’t receive a form, that does not relieve you of your responsibility to report the income and pay any taxes owed.
Here is a simple example of the difference between property versus currency for tax treatment:
If Veronica goes to the store with $400 and purchases something for $95, the transaction is relatively simple. Peter gives the clerk $400 and receives the product as well as $305 back. The product is worth $95 and that will be the adjusted basis (aka the original cost) for the product.
Instead, if Peter has crypto worth $20,000 that he exchanges for a new crypto valued at $20,500, then Peter has a $500 gain. In other words, Peter exchanged an asset that was worth $20,000 and received another asset worth $20,500. That new asset in Peter’s hand is worth $20,500. Presuming it was an arms-length transaction, the general rule would be Peter has a $500 gain that he would need to report on his tax return for the current year. When Peter goes to sell or transfer the new asset, it will be worth $20,500.
As you can imagine, when a person has hundreds, thousands, or even millions of crypto exchanges in a single year — the tax ramifications can be daunting.