I see a common misconception in the crypto space when people start learning about crypto taxes that they think every time they make a trade, swap, or sell they are losing more and more money to taxes the more they move money.
This is not always the case.
A taxable event simply means that you will now owe more taxes on that event if your investment has gone up, or you will owe less taxes on that event if your investment has gone down.
If you're using DEX's and private wallets you need to keep track of this yourself which is a pain. If you're using exchanges that require KYC, good news is that they're tracking all this for you and will send you a report at the end of the year for you to file with your taxes, making this process even easier.
Here are a few examples of what this looks like:
- Example A: I buy $100 ETH. My investment grows to $200 ETH. I swap for BTC today. I have to pay on tax on $100 gains this year.
- Example A Alt: I buy $100 ETH. My investment grows to $200 ETH. I swap for BTC next year. I have to pay on tax on $100 gains next year.
- Example B: I buy $100 ETH. My investment goes down to $50 ETH. I sell today. I now deduct $50 from my taxable gains this year.
- Alt Example B: I buy $100 ETH. My goes down to $50 ETH. I sell next year. I now deduct $50 from my taxable gains next year.
Disclaimer: Of course do your own research, I'm not a tax advisor, blah blah blah. And yes this only pertains to the US, rules vary by country.
Here are some helpful links:
https://www.coindesk.com/how-to-file-your-crypto-taxes
https://www.coinbase.com/learn/tips-and-tutorials/crypto-and-bitcoin-taxes-US
