Crypto Taxes Explained – Complete Beginners Guide 2022

If you’ve ever invested in cryptocurrencies, you need to understand how the government taxes your gains and losses and what is considered a taxable event. You also need to be able to keep track of all of these gains and losses and be able to report them accurately between tracking your capital gains and losses. Staking, yields, airdrops, and much more. It can get pretty confusing, and if you accept or pay in crypto, it’s essential to understand how all of these tax implications work. 

Taxes with Koinly 

One of the biggest misunderstandings surrounding cryptocurrency is taxes. I’m going to be sharing with you how taxes work, but also please understand that I am not an accountant. You need to do your own research and I highly recommend hiring a CPA or working with somebody in your jurisdiction as cryptocurrency tax regulation is different for everyone. 

We’re going to be using the United States here and the tax law overall, and I will be going into a decent amount of depth with this, also sharing with you how Koinly can literally save you potentially thousands of dollars and give you the opportunity to learn about your taxable income with cryptocurrency. Let’s go ahead and dive in. 

If you didn’t know, Koinly is one of the biggest and most widely used cryptocurrency tax accounting platforms online. The Koinly platform allows users to monitor all cryptocurrency transactions and activity, automatically collecting and classifying data as well as generating regulatory-compliant tax reports. 

Taxes in the U.S. 

So how do you pay your taxes on cryptocurrency? And why is this so important? Since cryptocurrency has become more popular, the IRS has been stepping up its game, and while new investors may think they can get away without reporting their taxes with crypto, this could be a very bad idea. If you avoid paying your taxes and you don’t report them properly, this could result in paying fines that may be even more than the gains that you earned with crypto, and there may even be some more serious consequences depending upon whether you do not report or you don’t report properly.

Now that we know how important it is to report your cryptocurrency taxable events, let me share with you how this works and what is considered a taxable event and what is not considered a taxable event with cryptocurrency.

Taxable event 

According to the IRS and many other countries, they don’t consider cryptocurrencies as currencies, they actually consider them as property. What this means is that any income that you make, even if you sell or trade your cryptocurrency coins, is considered a taxable event and needs to be reported. These are called capital gains or losses, depending upon how long or short you hold your coins. 

If you hold your coins for longer than one year, this is considered long-term capital gains. If you hold your coins for less than one year, these are considered short-term capital gains. Depending upon your overall tax bracket and your overall income, this will determine how much you will owe in taxes for short-term and long-term gains. How you report your cryptocurrency on your tax report will be determined by how you received your cryptocurrency and how much you actually received. This will determine how much you will owe in taxes depending upon your tax bracket.

Taxable event vs. non-taxable event

Now let me share with you what is actually considered a taxable event vs. what is not considered a taxable event. If you simply buy and hold a cryptocurrency coin, this is not a taxable event. And even if your coin goes up or down, you will not owe any taxes until you sell or trade your coin.

Let me share with you an example. If you go to Coinbase and buy bitcoin with your dollars, this is not a taxable event, but let’s say with your new bitcoin you want to trade it for ethereum. If you traded your bitcoin for ethereum, you would be triggering a taxable event even if you never planned on selling your ethereum in the long run. This is because there will be either gains or losses at the time that you bought your bitcoin. 

Let me share with you an example of how this works. Let’s say you bought one bitcoin for $10,000. Not bad, right? Today, 1 BTC is now worth approximately $40,000. Let’s say you wanted to trade your 1 BTC for ETH. 1 BTC would get you right around 12 to 15 ETH, depending upon the price. You go ahead and make the swap, and you just keep holding your ETH. You didn’t actually cash back out into dollars but rather just traded your coins, but you did trigger a taxable event because your bitcoin gained over thirty thousand dollars in USD value. If you went from 10,000 to over 40,000 dollars, you would owe taxes on these 30,000 dollar gains. If you were a high income earner, and let’s say your tax bracket was 35%, you would legally have to pay over $10,500 in taxes. This is why it is so important to be able to calculate your gains in real time so you know exactly how to prepare for your taxes, especially now during this time. 

But what about cryptocurrency losses? Can you balance out your gains with your losses? Let me absolutely share with you another example. Let’s say you bought 1 BTC for $10,000, but you also bought 100 ETH for a $100,000. Now if bitcoin went up to $40,000, you would have a gain of $30,000. If all of your etherium went to zero, you would have over 100,000 dollars in losses. This is never an ideal situation, but stay with me here for this example. If you were to sell your bitcoin at a 30 000 profit and you sold all of your ethereum at a 100 000 loss, you would have a net of $70,000 in losses. This means you wouldn’t have to owe anything in taxes because you actually lost more money than you realized with capital gains.

How Koinly keeps track of your Crypto events

Now, if this sounds a little confusing and is a lot to handle, this is why Koinly is so important. The reason why is that there are so many different ways today that you can trigger capital gains, capital losses, and also earn income with your cryptocurrency with staking, DeFi, and there are so many other things that you need to keep track of. Koinly keeps track of all of these things for you, so when you go and talk to your accountant, and again, I highly recommend you have one of these. Everything is very clear, easy to understand, and this software tool can save you literally, potentially millions of dollars depending upon how much cryptocurrency you’ve gained or lost within the last year. 

I have personally been a customer with Koinly for many years and I wanted to say the user experience is absolutely fantastic, so let me teach you even more about this product and why I personally have decided to share with you here how important this truly is.

How Koinly works

Koinly can help you create crypto tax reports in under 20 minutes, kindly calculates your cryptocurrency taxes and helps you reduce them for the next year. It’s simple and reliable, and it’s available in over 20 countries. They give you free reports to preview and they also give you a form 8949, which is easily integrated with Turbotax. 

Here’s how it helps you simplify your taxes. You can easily import all of your trades by simply adding exchanges via the API or CSV files and connecting your blockchain wallets using public adjusters. Koinly also tracks D5 margin trading and futures, so whether you’re staking on Kraken, lending on Nexo, or going long on BitMEX, Koinly can handle it all. Koinly also has something called “smart transfer matching.” Koinly uses AI to detect transfers between your own wallets and keep track of the original costs. They currently support over 300 exchanges and wallets, and many of these are some of the top exchanges in wallets like Kraken, Coinbase, Bitmart, Binance, and many others.

One of my favorite things about Koinly is that it will allow you to track your capital gains and losses in real time and preview them. You can get a glimpse of your profit or loss for any tax year for free. Koinly is an excellent tool for portfolio tracking. You can see your total holdings, your ROI, and growth over time on a beautifully laid dashboard. They also have a profit loss capital gains calculator, which will help you easily see how much you are up or down, and you’ll be able to view your realized and unrealized capital gains as well. 

Koinly also allows you to download your tax documents with just a few clicks of the mouse. Whether you’re filing for yourself using a tax software like Turbotax or working with an accountant, Koinly can help you generate the right crypto tax reports for you, whether it’s form 8949, Schedule D or any other IRS tax form. If you’re filing within the US. They also have comprehensive tax reports that generate a full crypto tax report with all of your long-term or short-term disposals. Koinly also guarantees to help you pass audits. 

Koinly also has an incredibly extensive blog that helps answer a lot of your questions. Simply go to the and scroll down to see some extensive articles to help you with your taxes and a complete tax guide.

How to use Koinly

I just wanted to share with you a quick tutorial on how Koinly works. If you were to buy Koinly or sign up today by clicking on the link down below, here is the overall dashboard. You can see right now I have no coins, no cost basis, and no unrealized gains as this is a brand new account for demonstration purposes. But let’s say I wanted to start adding in and tracking some of my cryptocurrency trades. All you would need to do is click on the wallets tab, then go ahead and click add a wallet or exchange. As you can see, they have the most popular cryptocurrency exchanges and wallets. They even have MetaMask and many other third-party wallets.

Next, all you would need to do is simply click on the desired wallet and this is where you could automatically sync up your Coinbase or many other cryptocurrency exchanges. This way, it will pull new transactions automatically using their API. You can also create without data and this will add Coinbase or any other of these exchanges to your wallet account. 

If I go ahead and click on the transactions, you can see there are no transactions here. But if I wanted to add transactions, this is where I could deposit, withdraw, or trade any of my cryptocurrencies as well as add in CSV or direct cryptocurrency transactions.

So once you’ve added in all of your wallets and compiled all of your transactions, it’s now time to create your tax report. Simply scroll down and you will see a variety of different things that are very important to pay attention to. First, you have your

  • capital gains or losses. 
  • other gains 
  • earnings and expenses,
  • gifts donations and lost coins. 

Depending upon how you’re earning your cryptocurrency, it may actually fall under “earned income” instead of capital gains or losses every single time you make swaps or pay fees. These are also costs and expenses, which can offset some of your income. And again, this is very important to understand why Koinly is worth its weight in gold and once everything is ready to go, simply pick your report and you’re good to go.

If you have any more questions besides their blog, they have an extensive amount of tax guides, other discussions and even a help centre for you to get started with your taxes.

Start with Koinly for FREE!

I also want to share with you how you can get started with Koinley today absolutely free. All you need to do is click the Sign up button and this is where you’ll be able to create your very own Koinly account. Just enter your name, email and password. 

If you do go ahead and decide to use Koinly, they do have a few options for payment, as in order to download tax reports and continue to use their services, they do have payment options. This would depend upon how often you plan on using Koinly and what you’re using it for. 

There’s a quick overview and complete guide to cryptocurrency taxes.