Crypto taxes: painless records
Lesson 10 of 39 in the course “Crypto”. Free, with animations and a quiz.
When tax kicks in
In many countries tax is charged not on buying but on profit, at the moment you lock it in. As in the picture: you sold crypto for money, swapped one coin for another or paid for something in crypto. Simply holding a coin is usually not taxed. Every country has its own rules, so check local law or ask a tax adviser.
How profit is counted
Profit is the sale price minus the purchase price. The purchase price is called the cost basis. The example in the picture: you bought coins for $200 and sold them for $300, so the profit is $100. Sold for less than you paid? That is a loss, and in many countries it lowers the tax on other trades. Once you have dozens of buys at different prices, counting by hand gets painful.
A tracker does the math
A tax tracker is a service that gathers all your trades and works out profit and loss on its own. As in the picture: you connect exchanges and wallets, the tracker pulls in the history, and at the end of the year it gives you a ready report for the tax office. It gets the history through an API key (access to your account data) or a CSV, meaning a trade export file from the exchange.
Safe and with backups
Give the tracker a read-only API key, as in the exchange security lesson: no trading and no withdrawal rights. Once a year download your trade history as a CSV and keep it yourself: an exchange can leave your country or close the account, and the tax office will still ask. Record losses too, they matter in the report as well.
Check yourself
- Which of these is usually not taxed in many countries?
Correct answer: Simply holding a coin. Tax usually appears when profit is locked in: a sale, a swap, a payment. While you just hold, there is no trade. - You bought coins for $500 and sold them for $650. What is the profit?
Correct answer: $150. Profit is sale minus purchase: 650 minus 500 equals $150. The purchase price is the cost basis. - Which API key should a tax tracker get?
Correct answer: Read only. A tracker only needs to see trades. Withdrawal rights turn a leaked key into access to your money.