Crypto gains, calculate crypto gains, short term and long term crypto gains, crypto tax

May 17, 2023

How to calculate crypto gains

Numerous investors are researching this new form of investment because cryptocurrencies have made a significant impact on the financial world. Understanding how to calculate crypto gains has become increasingly crucial as its popularity rises. Knowing how to calculate your gains accurately can help you make informed decisions regarding your investments and tax obligations.

What is Crypto?

Crypto, is a form of digital currency that employs encryption for security matters. Bitcoin, Ethereum, and Solana are examples of virtual assets. In contrast to conventional currencies, cryptocurrencies run on decentralized platforms known as blockchain technology.

What are Crypto Gains exactly?

Crypto gains refer to the profit you earn when you sell your virtual assets for a higher price than what you purchased it for. Depending on how long you held bitcoin (for example) before selling it, these profits may be either short-term or long-term

Why is calculating cryptocurrency gains necessary?

Calculating cryptocurrency gains is essential for two primary reasons:

How to Calculate Cryptocurrency Gains

Step 1: Collect the Data

Collect all of your transaction information prior to calculating your crypto gains. This includes the dates, quantities, and prices of purchases and sales. The vast majority of cryptocurrency exchanges provide consumers with downloadable transaction history.

Step 2: Choose a Cost Basis Method

For tax purposes, the cost basis of an investment refers to the asset's original value. In the case of cryptocurrencies, it is the initial purchasing price plus any costs. First-In-First-Out (FIFO), Last-In-First-Out (LIFO), and Specific Identification (SpecID) are all methods for calculating the cost basis. Your chosen cost basis method can have a significant impact on your calculated gains and losses; therefore, it is essential to comprehend each and make an informed decision.

Step 3: Determine Your Cost basis

Once you decide on a cost basis method, you can calculate the cost basis of each sale. Using the FIFO method as an example, the cost basis for a transaction would be the cost of the first coins you bought.

Step 4: Calculate Gains or Losses

To determine your profit or loss, subtract your cost basis from the selling price. If the result is positive, you will profit. Negative results mean that you are at a loss.

Crypto Gains and Tax 

Short Term Gains on Crypto Investments

If you own  virtual assets for less than one year before selling or exchanging them, any profits are considered short-term capital gains and are taxed as ordinary income.

Long Term Gains on Crypto Investments

Long-term capital gains are those that result from holding a cryptocurrency for more than a year. Depending on your overall income, long-term gains are typically taxed at a lower rate than short-term gains.

Crypto Losses 

If you incur a loss on your crypto assets, you may be able to deduct that loss to reduce your taxable income or mitigate other capital gains.

In conclusion

Calculating crypto gains involves collecting transaction data, selecting a cost basis technique, computing your cost basis, and ultimately calculating your gains or losses.

How to Calculate Crypto Profits:

Additional Information Resources

  1. Austria: Austrian Financial Market Authority
  2. Belgium: FPS Finance
  3. Bulgaria: National Revenue Agency
  4. Croatia: Croatian Financial Services Supervisory Agency
  5. Republic of Cyprus: Cyprus Securities and Exchange Commission
  6. Czech Republic: Czech National Bank
  7. Denmark: SKAT (The Danish Tax Agency)
  8. Estonia: Estonian Tax and Customs Board
  9. Finland: Finnish Tax Administration
  10. France: Direction générale des Finances publiques
  11. Germany: Federal Ministry of Finance
  12. Greece: Independent Authority for Public Revenue
  13. Hungary: National Tax and Customs Administration
  14. Iceland: Directorate of Internal Revenue
  15. Ireland: Revenue Commissioners
  16. Italy: Italian Revenue Agency
  17. Latvia: State Revenue Service
  18. Liechtenstein: Financial Market Authority Liechtenstein
  19. Lithuania: State Tax Inspectorate
  20. Luxembourg: Luxembourg Taxation
  21. Malta: Malta Financial Services Authority
  22. Netherlands: Belastingdienst (Tax and Customs Administration)
  23. Norway: Norwegian Tax Administration
  24. Poland: Ministry of Finance
  25. Portugal: Autoridade Tributária e Aduaneira
  26. Romania: National Agency for Fiscal Administration
  27. Slovakia: Financial Administration of the Slovak Republic
  28. Slovenia: Financial Administration of the Republic of Slovenia
  29. Spain: Agencia Tributaria (Spanish Tax Agency)
  30. Sweden: Swedish Tax Agency
  31. Switzerland: Federal Tax Administration - They provide information about taxation and financial regulations.
  32. United Kingdom: Her Majesty's Revenue and Customs (HMRC) - HMRC provides guidelines on how cryptocurrencies are taxed. Also, CryptoTaxCalculator is a UK-based software that specifically provides assistance with crypto tax calculations.

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