Introduction
Welcome to our guide on understanding and navigating your tax report. Designed with clarity in mind, this guide aims to decode the report's structure and translate it into straightforward, easy-to-understand information. In this guide, we will show you how to interpret the data in your report.
Section 1: Settings
Users can tailor their preferences on the settings page prior to generating a report. This includes various options such as choosing a country and setting the tax report period. After the report has been generated and downloaded, users will be guided to the overview, as outlined in Section 2. The subsequent information highlights the most critical settings for this country.
Important Settings:
Accounting method
We understand that proper financial management is crucial when dealing with cryptocurrencies, which is why we provide multiple accounting methods for you to choose from. Our options include First-In-First-Out (FIFO), Last-In-First-Out (LIFO), and Highest-In-First-Out (HIFO) among others.
Here is a brief overview of these methods:
First-In-First-Out (FIFO): This method assumes that the first assets you acquired are also the first ones you sold or exchanged. FIFO is a commonly recommended approach in many jurisdictions due to its simplicity and wide acceptance.
Last-In-First-Out (LIFO): In contrast to FIFO, the LIFO method assumes that the last assets you acquired are the first ones sold or exchanged. This can be beneficial in certain tax situations, particularly in a market of declining prices.
Highest-In-First-Out (HIFO): HIFO assumes that the assets acquired at the highest cost are the first ones sold. This method can help to minimize capital gains and hence, reduce your tax liabilities.
Each method has its own advantages and is suitable for different situations, therefore your choice should depend on your individual financial circumstances and the specific tax regulations in your country. FIFO is typically used in Spain.
Group by day
This feature allows daily grouping of transactions, useful if time zones were not accurately captured during import, and for reducing tax report items. Recommended for day traders in different time zones. Always check local regulations before use.
In addition to the functionalities already discussed, our platform offers numerous additional settings. For each setting, you will find an 'I ' symbol, this is the infobox which gives you detailed explanations about each setting. As you navigate the platform, these infoboxes will serve as your guide.
Section 2: Overview
Our tax report classifies transactions according to their respective tax regulations. Typically, transactions involving cryptocurrencies fall under the domain of capital gains, whereas any income earned or airdropped into your wallet is usually categorized as other income.
In this section, we aim to decode the various transaction types that can appear in your tax report. Understanding these transactions is crucial for identifying their tax implications, as well as their role as potential income sources. In this explanation, the following sections are elaborated on.
1.1.1. Realized capital gains/losses from spot trading
1.1.2. Realized capital gains/losses from outgoing gifts
1.2. Realized capital gains/losses from NFT trading
1.3. Realized capital gains/losses from margin, derivatives & future trading
2. General income from cryptocurrency & NFT trading
3. Non-taxable income from cryptocurrency and NFT trading
4. Other cryptocurrency and NFT payments
Capital Gains
The transactions highlighted in the following illustration are basic transactions involving cryptocurrencies. These cryptocurrencies are purchased and then either sold in exchange for other cryptocurrencies or fiat currencies, or transferred to an external wallet not owned by you. The profits that arise from these transactions generally qualify as capital gains.
Capital gains arise when a capital asset, like stocks or cryptocurrencies, appreciates in value. This appreciation, which enhances your capital or wealth, becomes taxable when the asset is sold or exchanged. Transactions usually triggering capital gain include trade, spend, fees in cryptocurrency, remove, and provide liquidity.
This is how capital gains are stated in CoinTracking
In July 2022, A bought 1 BTC for 100 EUR. By August 2022, A sold this 1 BTC for 200 EUR, thereby realizing a capital gain of 100 EUR. This 100 EUR profit is registered under section 1.1. Realized capital gains/losses from cryptocurrency trading.
Furthermore, profits from margin trading, derivatives, and futures are classified as capital gains, as they represent profits from the sale of assets. The precise categorization can vary based on local tax laws, but usually, when these types of investments are sold for more than the purchase price, the profit is considered a capital gain.
Transaction types typically regarded as capital gains from margins, derivatives, and futures include margin gain, derivatives/futures gain, margin loss, margin fee, derivatives/futures loss, and settlement fee.
On July 1, 2022, A made a margin profit of 100 EUR. The very next day, on July 2, 2022, A incurred a margin loss of 50 EUR. As a result, A realized a capital gain of 50 EUR (100 EUR profit - 50 EUR loss). This 50 EUR gain is documented under section 1.3. Realized capital gains/losses from margin, derivatives & future trading.
General income
Cryptocurrency Income pertains to any form of earnings obtained through various crypto-related activities, which is subject to taxation when control over the crypto asset is established, and its value can be measured in real-world terms. It's crucial to note that the specifics of how cryptocurrency income is taxed can vary significantly between jurisdictions.
The following transaction types are typically considered as income: Income, Reward / Bonus, Staking, Mining, Airdrop, Masternode, Dividends income, Lending income, Interest income, Other income, LP Rewards,
On July 1, 2022, A received a mining reward of 0.5 BTC, valued at 20.000 EUR. Then, on July 2, 2022, A received an airdrop reward of 100 AVAX, worth 100 EUR. These forms of income, both from mining and airdrop rewards, are subject to the standard income tax rate and are collectively registered under section 2. General income from cryptocurrency & NFT trading.
Non-taxable income
Non-taxable cryptocurrency Income encompasses earnings from crypto-related activities that some jurisdictions do not subject to taxation. This might include certain types of airdrops or other forms of income. However, it is essential to note that not all countries recognize the concept of non-taxable cryptocurrency income. The tax obligations related to cryptocurrency vary greatly worldwide, and what is considered non-taxable in one jurisdiction may be taxable in another. Always consult with a tax professional or local tax authority for the most accurate information.
The following transaction types are typically considered as non-taxable income: Airdrop non-taxable, Income non-taxable.
On October 1, 2022, A received non-taxable income in the form of 1 BTC, valued at 60.000 EUR. This non-taxable income is documented under section 3. Non-taxable income from cryptocurrency and NFT trading.
Other cryptocurrency and NFT payments
Donations, gifts, stolen/hacked/fraudulent transactions, lost assets, commercial mining, and minting are reported separately. This is because the taxation for these types of transactions often varies between countries. Therefore, to accommodate these differences, these transactions are displayed separately.
On September 1, 2022, A received a gift/tip in the form of 1 BTC, valued at 40.000 EUR. This gift is recorded under section 4.1. Incoming donations and gifts in the context of other cryptocurrency and NFT payments.
Section 3: Transaction list
The Transaction List is a detailed record of all transactions that have taken place over a certain period. It includes:
Amount: Refers to the quantity of units bought or sold.
Date Acquired: The date when the unit was purchased or acquired.
Date Sold: The date when the unit was sold.
Buy/Input at: Buy/Input at is the Location of the purchase or the locations of the coin at the time of sale (when using depot separation).
Buy coin Category: This column identifies the type of asset or commodity a cryptocurrency was exchanged for.
Type: Refers to the selected transaction type
Cost Basis in EUR: The original cost or value in EUR.
Proceeds in EUR: The amount received from the sale of the unit, expressed in EUR.
Gain/Loss in EUR: The financial gain or loss from the sale, calculated as the difference between the proceeds and cost basis.