In terms of the former, the way that investors can avoid paying taxes is not to sell their crypto holdings. Tax is only calculated on the capital gains made from an investment position – and capital gains only occur when the trade is exited, and a profit is made.
1 - Buy and Hodl your crypto investments for the long term
So one of the simplest strategies to avoid paying crypto taxes, is to simply buy and hold your crypto. Even if the value of your crypto portfolio increases each year, you won't have to pay tax until you sell. This strategy works best the longer you hold.
Buying, swapping, or trading one crypto for another (ex. BTC → ETH) is a taxable event in Australia. Even though you never received any dollars in hand, you still have to pay tax at AUD equivalent value if you made a gain on the disposal of the BTC.
The IRS classifies cryptocurrency as property or a digital asset. Any time you sell or exchange crypto, it's a taxable event. This includes using crypto used to pay for goods or services. In most cases, the IRS taxes cryptocurrencies as an asset and subjects them to long-term or short-term capital gains taxes.
Another important factor to consider is the reporting requirements for cryptocurrency transactions. Taxpayers are required to report all cryptocurrency transactions, including buying, selling, and trading, on their tax returns. Failure to report these transactions can result in penalties and interest.
Investors must report crypto gains, losses and income in their annual tax return on Form 8940 & Schedule D. Evading crypto taxes is a federal offence. Penalties for tax evasion are up to 75% of the tax due (maximum $100,000) and 5 years in jail.
However, you still need to report your earnings to the IRS even if you earned less than $600, the company says. The IRS can also see your cryptocurrency activity when it subpoenas virtual trading platforms, Chandrasekera says.
You must report crypto — even if you don't get tax forms
In 2021, Congress passed the infrastructure bill, requiring digital currency “brokers” to send Form 1099-B, which reports an asset's profit or loss, annually. However, the IRS delayed this rule in late December. Some digital exchanges have already complied.
You owe taxes on any amount of profit or income, even $1. Crypto exchanges are required to report income of more than $600 for activities like staking, but you still are required to pay taxes on smaller amounts. Do you need to report taxes on crypto you don't sell?
Short-term crypto gains on purchases held for less than a year are subject to the same tax rates you pay on all other income: 10% to 37% for the 2022-2023 tax filing season, depending on your federal income tax bracket.
Yes, the ATO tracks crypto. Your data is likely already on file with the ATO if you've got an account with an Australian cryptocurrency designated service provider (DSP).
The short answer is, the ATO already know when you're trading cryptocurrency. The ATO has developed a data matching program with cryptocurrency exchanges to ensure no cryptocurrency transaction sneaks through the cracks.
Report CGT on crypto assets in your tax return
If the tax return is for a company, trust or fund, go to Part C of the capital gains tax guide. Our crypto asset data-matching program matches what you report in your tax return with data on crypto asset transactions and accounts from designated service providers.
Bitcoin, the largest cryptocurrency by market cap, is a risky investment with high volatility. It should only be considered if you have a high risk tolerance, are in a strong financial position and can afford to lose any money you invest in it.
Examplium cryptocurrency
What's more, the IRS allows you to deduct net capital losses, up to an annual cap of $3,000 ($1,500 if you're married but filing separately), from your personal income, so you also can reduce your taxable income by $100.
Is sending crypto to another wallet taxable? Sending crypto to another wallet that you own is not considered a taxable event. In this case, no 'disposal' has occurred so there's no capital gains tax. Is it better to keep your crypto in a wallet or an exchange?
If you're sending crypto to another wallet that is not your own, the transaction is subject to capital gains tax and your tax rate depends on how long you held and the price difference between when you bought and when you sent it.
Yes, you can get audited for cryptocurrency. All exchanges supply user records to the IRS which enables them to cross-check reports. In other words, if you haven't reported cryptocurrency on your tax return, or if your report does not match the IRS's records, the IRS could run a crypto audit on you.
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
Getting paid in Bitcoin, requires setting up a free account on a digital currency exchange, such as Coinbase. Recipients of crypto payments can then store their bitcoins in digital wallets. They can sell their tokens on the digital currency exchange for legal tender.
Bitcoin (BTC) and other cryptocurrencies are legal in Australia and are treated as property. It is legal to trade, spend, receive and store cryptocurrency, and they are an accepted means of payment for personal and business transactions, although merchants are not obliged to accept it.
For capital gains from crypto over the £12,300 tax-free allowance, you'll pay 10% or 20% tax. For additional income from crypto over the personal allowance, you'll pay between 20% to 45% in tax.