Cryptocurrency is considered a Digital Asset, and will therefore be taxed accordingly. Different types of events are taxable when dealing with cryptocurrency. Beyond capital gains or losses on your holdings, certain types of cryptocurrency activity can also fall under the tax designation of Income. Income will be taxed differently to gains or losses, as it is a direct incoming source of value into your cryptocurrency portfolio.
Some examples of events that are taxable as capital gains: selling a coin or token that you have held, swapping a cryptocurrency you have held for another, making payments in crypto, etc.
Some examples of events that are taxable as income: incoming cryptocurrency rewards (this can be through rewards programs, mining, staking, airdropped rewards, etc) are all taxable as income. This also applies to any crypto payment in exchange for goods or services, or salary payments, a person receives.
Some examples of non-taxable events: buying cryptocurrency without selling, donating cryptocurrency, sending or receiving gifts, etc.
Currently, Ledgible calculates gains and losses on all taxable events to be reflected in user reports. However, income cannot be automatically detected and therefore transactions that are to be taxed as such must be designated by the user. This can be done both to individual transactions or in bulk depending on your number of transactions (please note that as income vs. capital gains both pertain to declaring taxes, these features are available only in Ledgible Tax and Tax Pro, not Ledgible Accounting). Transactions can also be categorized as non-taxable events.
To categorize an individual transaction:
- Navigate to the Transactions tab, and find the transaction in question.
- To the right of the transaction, click the Action Buttons (three dots) to view more options.
- From there, select Add Categorization.
- Select the categorization you would like to add to your transaction. Please note that only incoming transactions can be designated as income, and only outgoing transactions designated as non-taxable events, and therefore the options for categorization will differ depending on the transaction type.
- Confirm the categorization and your transaction will be successfully marked as income or non-taxable.
To categorize transactions in bulk (only for blockchain-connected wallets or API-linked exchanges):
- Navigate to the Transactions tab.
- Towards the top-right, click Categorize (or Recategorize if you have already made changes).
- From here, you can choose to create a new categorization rule or reapply an older one. Click Create New Rule.
- When creating a rule, first, select a Rule Action. This will allow you to apply the rule to all transactions, only new transactions, or to remove a previous rule from transactions.
- After the rule action, select the address that you would like to appy the rule to: if the rule applies to all incoming transactions, enter your address in the To Address field, if the rule concerns outgoing transactions, enter your address in the From Address field.
- Enter a Currency.
- Enter a date range you would like this rule to apply to.
- Finally, enter the designation the rule will apply (mining income, staking rewards, donations, etc).
- Once all the information has been entered, click Next, and Ledgible will display the number of transactions that will be affected by your new rule. Verify this number matches your expectations, and Ledgible will automatically classify the transactions once you hit Run Rule.
Applying designations when importing from an unlisted wallet or exchange:
- Follow the instructions described in this article and video on how to import transactions from unlisted sources.
- When formatting your transactions into the Ledgible template, fill out the Tax Category field with the relevant designation. Possible categorizations for deposits are forkIncome, interest, miningIncome, reward, stakingReward and workIncome. Categorizations for withdrawals are gift and donation. You can find more information on this in our File Import Template.
With the rules or individual categorizations applied, Ledgible will include this data in the reports it generates for correct taxation. If you face any difficulties applying your categorizations, please do not hesitate to reach out to Ledgible Support!