Forks and Airdrops may be considered a form of income, but a lot will depend on how the individual Forks or Airdrops are managed by the organisations behind them.
Some good news
Even though there will be guidance available from your tax authority, it will still be a daunting task to collate your trading history across multiple wallets and exchanges. That challenge should be made easier by the fact that the majority of exchanges should allow you to export your trading history through an API feed or by manually exporting a CSV, while Wallet transactions can be identified from each relevant address.
If you don’t fancy long nights making sense of your trading history from a tax perspective, there are now a growing number of crypto tax services that for a fee, will do it for you.
All you’ll need to provide is connect your wallet and exchange and they will do most (thought not necessarily all) the heavy lifting.
Capital Losses
Though the idea that you might have to give away your hard earned profits might be painful, the good news is that your trading losses might be tax deductible. Where taxable crypto events are loss-making, you might be able to count these against any gains as a Capital Loss. The net result might be that you are actually due to a refund – who knew that buying Dogecoin at the top would provide some benefit!!
Tax Allowances
Now the thought that a share of the profits you may have made from this magic internet money has to go to the government may put your day on a bit of downer. It isn’t all bad.
Most tax systems work on the basis of taxable allowances. What this means is that for each category, tax isn’t liable until a certain amount is reached. In the UK for example, Crypto held as a private investment is liable for Capital Gains but only after the first £12,500 (2020/21). So any capital gains you make from crypto below £12,500 – within the financial year – likely mean you don’t have to make a tax return, but there are other considerations – such as the level of disposals – which mean you should check with the official guidance from your local tax authority.
Gifting
Given the complexities of tax, there is an entire industry dedicated to mitigating tax liabilities. If you’re not quite in that bracket, there are some simple techniques worth considering which can make the most of allowances, such as gifting to a husband, wife, partner etc
By gifting crypto, you may effectively double the available allowance.
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