Stepping into digital asset investing is exciting, but also comes with certain responsibilities, namely tax implications. We look into some of the main areas to be aware of when it comes to tax and digital assets.

Classified as property by the Internal Revenue Service (IRS) in the U.S. and many European tax authorities, transactions involving cryptocurrencies and other digital assets are subject to capital gains tax rules in many jurisdictions.

Capital Gains Tax:
Any profits made from buying and selling digital assets are subject to CGT, with short-term gains (assets held for less than a year) and long-term gains (more than a year) taxed at different rates.

Record-Keeping and Reporting:
Detailed records of any transactions you make should be kept, and all taxpayers must declare their crypto activities on their tax return.

Income Tax on Payments:
Receiving digital assets such as crypto as payment for goods or services is considered as taxable income, and the assets’ fair-market value at the time of receipt is what needs to be reported as income.

Using Crypto for Purchases:
The use of crypto to buy goods or services is classified as a taxable event, and the difference between the purchase price and your cost basis is categorised as a capital gain or loss.

Mining and Staking:
Any rewards from these activities are generally considered as gains liable for tax at their fair market value at the time of receipt.

Third-Party Reporting:
Many crypto exchanges issue transaction summary reports, but taxpayers are responsible for accurate reporting.

The descriptions provided above are all based on publicly available information, and cannot be considered as financial advice or encouragement to invest. Sources of information used in this post include IRS, the European Commission and Deloitte. All transactions involving digital assets involve certain risks, which you should familiarize yourself with prior to any investment.