Here are the basics on juggling your coins without dropping any!
I. A quick peEk at taxable shenanigans (aka taxable events)
You only pay tax when there is a taxable event. For an individual trading crypto, these are the basic events:
- Swapping your beloved Bitcoin for that old-school USD or GBP. (aka known as as selling cryptocurrency for fiat currencies)
- Trading a virtual tail-wagger (Dogecoin) for some digital wizardry (Etherum). (aka exchanging one cryptocurrency for another).
- Splurging your crypto to grab a real-world latte. (aka using cryptocurrency to pay for goods or services)
- Giving away cryptocurrency to someone, but remember, spouse get the tax-free pass, like they do with the TV remote!
II. Capital Gains Tax (CGT): The Pie Thief
You have made some dough selling crypto, and now the tax gnome wants a slice!
When will you have to share your pie?
- Cashing out to those ancient paper notes.
- Trading one cryptocurrency for another (Yep! Even if no ‘real’ money is involved).
- When your digital coins buy you real things.
- Generously gifting cryptos (unless it’s to your better half!).
how is the pie sliced?
- Buy low, sell high? Congrats, you’ve got a profit! Your reward requires you to declare it and share a piece of the pie.
- Sold for less than you bought? Ouch, that’s a loss. But hey, you can use it like a coupon to offset other gains.
III. Income tax: the cheeky wallet-nibbler
The wallet-nibbler will strike when you….
- Unearth a coin from the crypto mines.
- Got a rain of coins from an airdrop.
- Accept crypto payments at work instead of regular bucks.
Lastly, don’t forget that there may be cost to being a frequent flyer instead of a tourist!
Individuals trading cryptocurrency very frequently or in a business-like fashion may face Income Tax rather than CGT