Bitcoin and Taxes (Beginner-friendly Introduction)

Bitcoin is become very popular in 2018, with many new people buying it for the first time. A big problem for these people is that many guides on Bitcoin, in particular related to tax, aren't really beginner friendly. They assume you know what certain terms mean, and have a general idea of how tax works.

This guide will explain Bitcoin/cryptocurrency tax in a beginner-friendly way.

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What are Crypto taxes?

So maybe you're a student, or you've just graduated and haven't had to deal with taxes yet. In general, a tax is a contrubution you make to your countries' government to pay for things like government/public sector employees, public services, etc. Commonly when people talk about tax they're talking about one of these two scenarios:

  • In many countries you pay a tax on goods/services (sometimes referred to as sales tax). Most countries include this in the price of goods/services, but in the US for example this is often only added when you're making a payment (e.g. your item might be listed as $10, but you actually have to pay $11 for it because of a $1 tax).
  • When you have a job and you're earning over a certain amount of money, in most countries you have to pay a tax on your income (referred to as income tax), which generally increases the more you earn. You also have to pay tax on other earnings such as profit from investments in shares/cryptocurrencies like Bitcoin.

When people refer to Bitcoin/crypto taxes, they're generally referring to the second point above, the type you have to pay if you're earning money from investing (this is why many people dislike the concept of crypto taxes in general, because it means you need to both track your profit/loss very accurately, which can be very difficult and time consuming, and pay large amounts of tax if you're doing well in crypto). They're likely not referring to a goods/services tax you have to pay when buying/selling crypto.

For more information on the tax regulation in your country (the rules for how much you need to pay), see this guide.

Crypto Tax Terminology

When looking into crypto tax, many terms are used with an expectation that you know what they mean. Here are some of these terms, and what they actually mean:

  • Calendar Year: This is a one-year period between the first day of January and last day of December. e.g. the 2018 calendar year would be the 1st January 2018 to the 31st December 2018.
  • Tax Year: This is one-year period, where any earnings/losses made during this period need to be submitted in the tax return for that year. Sometimes this is the same period as a calendar year, but many countries have different periods; for example the UK 2017 tax year is between 6th April 2017 - 5th April 2018. See this guide for a list of tax years in various countries.
  • Submission/Filing Deadline: This is the date when the earnings/losses for the previous tax year need to be submitted. e.g. the 2017 US tax year is between 1st January 2017 to 31st December 2017, and their submission/filing deadline is on the 16th April. As the 16th April 2018 is the first occurance of that date after the 2017 tax year, this is the submission/filing deadline for their 2017 tax year. See this guide for more info.
  • Payment Deadline(s): Similar to the submission/filing deadline, this is when any oustanding tax needs to be paid. Some countries require this in one yearly payment, and others at intervals of say every 3 months. See this guide for more info.

In what countries do I need to pay crypto tax?

This an area where you need to be very careful. In early 2018 there have been many news articles about people in the US not declaring crypto gains, with common arguments like the process of working out gains/losses on crypto being very complex, and people generally not knowing that they should be declaring crypto gains at all.

In general, most developed countries require tax to be paid on crypto earnings, see this guide for the rules in various countries, where if you don't pay it you may be breaking your countries' tax evasion laws (which is a crime in almost all developed countries). So you should research this area, and pay any taxes required to avoid breaking these laws/having to pay extra fines.

A grey area here is that when researching this ourselves, we found several websites/YouTube channels strongly opposed to crypto tax. Often because of the nature of crypto being decentralised, it crosses over with anarchism-based content (where people are very opposed to paying taxes to centralised governments). Regardless of if you agree with this view or not, just make sure you're aware of your country/state's laws (the website owner/YouTube creator may be in a different country and so acting on their advice may be breaking your country/state's laws).

DISCLAIMER: This site cannot substitute for professional investment or financial advice, or independent factual verification. This guide is provided for general informational purposes only. Bitcoin Kit is UK-based and not regulated by the FCA (Financial Conduct Authority). The group of individuals writing these guides are cryptocurrency enthusiasts and investors, not financial advisors. The ideas presented are our analysis, learning & opinions on a range of cryptocurrency topics. Trading or mining any form of cryptocurrency is very high risk, so never invest money you can't afford to lose - you should be prepared to sustain a total loss of all invested money.

This website is monetised through affiliate links. Where used, we will disclose this and make no attempt to hide it. We don't endorse any affiliate services we use - and will not be liable for any damage, expense or other loss you may suffer from using any of these. Don't rush into anything, do your own research. As we write new content, we will update this disclaimer to encompass it.

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