Tax laws for bitcoin and other cryptocurrencies vary significantly by country. At one end of the spectrum, it's possible to be completely exempt from taxes on profits made by investing in digital assets. At the other end, you could be taxed as high as 55% with no possibility of employing strategies like tax-loss harvesting.
Many people who use cryptocurrencies in their daily lives to make purchases don't fully appreciate the potential tax implications of doing so. For example, in some regions you're technically required to record and duly report your crypto capital gains for every single transaction, including that $15 in Bitcoin you sent to your friend to pay for dinner.
Complicating matters further, it's estimated that 75% of countries haven't yet established clear guidelines on crypto taxation. And even where regulators have been proactive, the rapidly evolving crypto landscape means that many questions remain unanswered. For example, are you obliged to pay taxes on a token you were airdropped? How do you calculate your cost basis in the event you received tokens in a fork?
While regulators grapple with these and other questions, the global adoption of cryptocurrencies marches on. In some regions, regulators have found that their first attempts at taxation imposed unrealistic obligations on crypto users to the point that the majority of users simply ignored the laws. In many cases, the high level of non-compliance forced regulators to go back to the drawing board. For individuals and businesses alike, the result is more confusion as laws change from year to year.
The fact is, whether you're a passive retail investor, an active trader, a business taking crypto payments, or an avid user of Bitcoin and other cryptocurrencies, there's a good chance you have serious tax obligations. This means you'll need to look carefully at the tax laws in your country of residence as they are likely to have important implications, whether it be for your trading strategy, your business model, or how you use cryptocurrencies in your daily life.
Of course, most of us don't have the time to scour through legal opinion papers, precedent-setting cases, or rapidly evolving guidelines issued by tax authorities. Unless you're a large business, you also likely don't have the resources to employ a tax lawyer. Luckily there's a growing variety of tools you can leverage to ensure you're complying with the tax laws in your country. We recommend TokenTax, which is a crypto tax software platform and crypto tax calculator that vastly simplifies the process. It helps you connect to exchanges, track your trades, and automatically generate crypto tax returns regardless of your country of residence.
In the interests of providing an overview of the rules that are most likely to affect you, here we break down crypto tax rules by country:
Read more: How cryptocurrency is taxed in the US.
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