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Capital Gains tax-Crypto?
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In principle it's a taxable event. But of course there's only a tax liability if and to the extent that the Polkadot you sell has risen in value since you acquired it.Mickey Mania wrote: »Just wondering, if you do crypto to crypto trades and are liable to pay tax, let's say someone sold AVAX into Polkadot and made a profit. Is it possible to sell a portion of that Polkadot off just to pay for tax or is that in itself a taxable event?
You can, if you wish, avoid the problem by not buying the Polkadot in the first place - i.e. when you sell the AVAX calculate your gain, calculate your CGT liablity on that gain and then sell the appropriate part of your AVAX not for Polkadot but for actual cash money, which you then set aside until tax time. Saves you commission on buying and selling the Polkadot, and saves you the risk that the Polkadot will appreciate while you hold it, thus triggering a further tax liability when you sell the Polkadot.
Of course, you might be lucky. Your Polkadot holding might plummet in value, which would not only avoid any CGT liablity on sale at tax time, but might even generate a useful loss which could be used to reduce your tax liability on the earlier transaction.
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Peregrinus wrote: »In principle it's a taxable event. But of course there's only a tax liability if and to the extent that the Polkadot you sell has risen in value since you acquired it.
You can, if you wish, avoid the problem by not buying the Polkadot in the first place - i.e. when you sell the AVAX calculate your gain, calculate your CGT liablity on that gain and then sell the appropriate part of your AVAX not for Polkadot but for actual cash money, which you then set aside until tax time. Saves you commission on buying and selling the Polkadot, and saves you the risk that the Polkadot will appreciate while you hold it, thus triggering a further tax liability when you sell the Polkadot.
Of course, you might be lucky. Your Polkadot holding might plummet in value, which would not only avoid any CGT liablity on sale at tax time, but might even generate a useful loss which could be used to reduce your tax liability on the earlier transaction.
So, if Polkadot went up 3x in value and one sold a smaller portion of it to pay for tax on the previous trade, that would then be a taxable event?
In relation to the second point, is the tax not owed on the previous trade? So if Polkadot plummeted in value, wouldn't you have to sell more Polkadot to account for the gains made on the previous trade? There was a tax assistant in the U.S. who sold his Bitcoin into Alts, made gains, but his portfolio plummeted, he still owed the IRS 50k on the original trade.0 -
Yes.Mickey Mania wrote: »So, if Polkadot went up 3x in value and one sold a smaller portion of it to pay for tax on the previous trade, that would then be a taxable event?
Well, let's do a little worked example (in which I will completely ignore transaction costs and the small gains exemption, to keep things simple).Mickey Mania wrote: »In relation to the second point, is the tax not owed on the previous trade? So if Polkadot plummeted in value, wouldn't you have to sell more Polkadot to account for the gains made on the previous trade? There was a tax assistant in the U.S. who sold his Bitcoin into Alts, made gains, but his portfolio plummeted, he still owed the IRS 50k on the original trade.
I buy €100 worth of Bitcoin. Years later I dispose of it, at a time when it's worth €5,000. My gain, obviously, is €4,900. CGT on that at 33% would be €1,617.
When I dispose of my Bitcoin, I do so by swapping it for Alts worth, obviously, €5,000. By the end of the year, when the time comes to pay my tax, let's say this has fallen to €3,000.
I now have a choice:
I can do nothing. I have only one chargeable transaction to report and it will result in a tax bill, as already calculated of €1,617. I'll have to find the cash to pay this somewhere.
Or, before the end of the year I can dispose of my Alts for another crypto, or for cash, or for anything, really. It doesn't matter. The disposal of the Alts is a second chargeable transaction, resulting in a loss of €(5,000 - 3,000
2,000.
So now my CGT return for the year will show two transactions occurring in the year, one resulting a gain of €4,900 and the other resulting in a loss of €2,000. I can set the loss off against the gain. Net gains for the year are €(4,900 - 2,000 €2,900. CGT on that at 33% is €957. So I've saved €660 in tax. But note that I can only do this because I disposed of the Alts; until I dispose of the Alts, I don't have either a loss or a gain, regardless of what the price may be doing.
Plus, I no longer hold any crypto. What I have (assuming I sold the Alts for cash) is €3,000 that I got from selling the Alts, less €957 that I have paid to the Revenue, leaving me with €2,047 - still a lot more than the €100 I started off with all those years ago, but a lot less than I'd have if I'd never bought the bloody Alts in the first place. If I haven't been scared off my experience with the Alts I can, of course, use my €2,047 to buy more crypto - Alts, or something else.0 -
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