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If you are a known bird with cryptocurrency, you would be aware of its taxes and everything associated. As cryptocurrency is in demand and demand is directly proportional to its value. People are diverging their way from investing in it to selling it. Crypto would be sold by a user when its market value would be high. So, When users sell their cryptocurrencies through third-party or peer-to-peer exchange platforms, then the value of crypto earned in money would have a profit, known as crypto gains. These crypto gains come with paying tax on them, levied by the government. Though it is not central control, it still possesses a tax. Now, you have to pay a tax on any profits you earn. If you aren’t willing to then, disclaimer while preparing your tax return, the selling of crypto will have a noticeable impact at the end of the financial year. Australian Taxation Office (ATO) announced for this financial year to have a look at the cryptocurrency. They will be acquiring accounts and checking the transaction history of more than 6,00,000 lakh individuals. That means cryptocurrency transactions should be there on the tax return.
When are Crypto Gains Earned?
Crypto gains come into the picture when the disposal of a share of cryptocurrency takes place. It can occur due to many factors:
- When selling your crypto- third party or to a friend, relative.
- When binary trading or exchanging another crypto
- Converting crypto to the United States Dollar or any other currency.
- For obtaining goods or services.
After disposing of your cryptocurrency for any of the above circumstances, you become liable to pay tax on that ‘gain’ earned .i.e Crypto gain or Capital gain.
How to Calculate Crypto Gains?
The crypto gain or business loss is calculated by the difference between the cost base and the selling price on which the asset is sold. ( value at that time when selling).
- The price paid for the share or crypto that includes brokerage and stamp duty fees is called the cost base.
- Sale price is the price at which the crypto is sold or exchanged. It is determined by the market value at the time of selling, transferring. It can change after the selling of crypto. It also affects crypto gains. For instance, if the crypto value was low but became high during selling. Then, it would count as a crypto gain for the seller.
Capital gain is when the difference between the cost base and the sold price comes positive.
Your sale price – your cost price = your total capital gain or loss
Sometimes, the cryptocurrency disposal can turn out as a loss. A capital loss or crypto loss can also arise when shares/coins of a company are declared worthless by it. This would decrease the value, resulting in a capital loss. It will become a loss of all the amount purchased including brokerage or stamp duty.
Your sale price – your cost price = capital loss
It is, however, beneficial as could be used to offset a crypto gain, thus reducing the amount of Tax required to pay. If the user didn’t have any gains in the year, then it would be carried forward to offset gains in future financial years. Though, unused to reduce assessable income.
Tax on Crypto Gains
It is believed by many that Capital gain is a separate business tax on assets. However, these gains are added to the ordinary income to count asses-sable income.
For example, Juhi earned a total of 40 thousand euros from July 2018 to June 2019. This income puts her in the 19% tax bracket. However, she purchased 1,000 shares for 60 euros each n August 2018. She sold them for 80 euro each in April 2019. Thus, making a 20,000 euro profit which will be the capital gain of that financial year. It would get added to her wages to increase her assessable income for the year. She will start paying tax on that gain at 19%. Also, she will be liable to pay a tax of 32.5% on that gain part. If you make it again: If the gain is there, the user has to report the amount under the ‘current year capital gains’ in a tax return. You would be able to get a discount on the capital gain by 50% if you had your crypto for more than 12 months.
Calculating Using a Tax Calculator
The clear-tax bitcoin calculator serves best as it calculates both; short-term capital gains and long-term capital gains. The holding period impacts both types of gain. If crypto has a holding period of fewer than three years, it would fall into the category of short-term gain. The gain gets adjusted with taxable income. The user would get alleged to pay the tax as per the income tax bracket. Holding for more than three years, long-term gain. Users are required to pay long-term capital gains tax. The calculator shows you the short-term capital gains tax or the long-term capital gains tax depending on the holding period of crypto.
The below list is for short-term and long term capital gains
- Select nature of the acquisition
- Choose the holding period
- Enter sale price( at that time price)
- Enter purchase price
- Enter transfer expenses, if any.
That’s it. The calculator will show the short-term capital gains. In the long-term capital gains, the holding time will be changed and will be changed.
The crypto gains are dependent on the factors of holding it and the price at which the crypto would be sold or exchanged. If the price will high, the user will earn profit. If the price will be down at the time of selling or exchanging, then it would be a loss. Therefore, crypto gains are calculated according to these two. Also, the cryptocurrency is not centrally governed, thus, crypto gains are the only way through government earns money from it. Also, sometimes, it turns beneficial for the sellers to keep it for the future as a high-value rise and less holding period results in a great profit to count. Are you investing in trading, check out the bitcoin equalizer bot