Remember that if you are a U.S. Person (US Citizens & Green Card Holders) tax resident in Spain, due to the bilateral treaty to avoid double taxation, you must pay taxes in Spain, but that does not exempt you from the obligation to also report it in US Individual Tax Return (Form 1040). Cryptocurrencies are taxed in Spain and in the US.
What is a cryptocurrency?
Crypto are digital currencies based on a peer-to-peer electronic cash system (Bitcoin was launched in 2009). Unlike traditional currencies, the cryptocurrencies have no central monetary authority. Their strengths, as a digital currency, include that the system guarantees complete transparency by recording each transaction at a huge version of a general ledger called blockchain and that its transaction fees are miniscule and fast.
The General Directorate of Taxes in Spain defines virtual currencies as immaterial goods, computable by units or fractions of units, which are not legal tender, which can be exchanged for other goods, including other virtual currencies, rights, or services, if they are accepted by the person or entity that transmits the good or right or provides the service, and that can be acquired or transmitted generally in exchange for legal tender. Cryptocurrencies are taxed in Spain and in the US.
In 2014, the IRS determined that cryptocurrency should be treated as capital assets rather that mainstream currency, this decision meant that everyone who owns crypto is now liable to pay taxes, because capital assets sold at a profit are taxed as capital gains taxes. Cryptocurrencies are taxed in Spain and in the US.
Crypto is just a currency; why tax it?
The IRS puts taxes on anything that is treated as an investment, and it is widely known that people buy crypto more as an investment. For example, you bought $100 worth of Ethereum, and over time the value got up to $1,000. If you used the crypto to buy $1,000 worth of gadgets, capital gains taxes would be owed on $900. Cryptocurrency has trading values in millions of dollars, so the IRS and the AEAT could not miss the chance to collect huge volumes of tax revenue.
Which crypto activity needs to be reported in Spain and in the US?
In general cryptocurrency is taxed as property, like stocks. In Spain, you must include it in personal income tax and pay taxes, not only in cases where you go from a cryptocurrency to FIAT money (euros) also in cases of trading (permutas de bienes). For example, if ethers are bought with bitcoin, since it is an exchange carried out outside of an economic activity, it is an exchange of goods that gives rise to that capital gain or loss. In the USA it is given a similar treatment.
Since cryptocurrencies are a new activity, tax administrations develop new regulations very often it is important to check with an expert the very current taxation of the different crypto activity.
The IRS states that new coins received through an airdrop are taxed as ordinary income. Therefore, you owe income taxes on new coins you have in your wallet due to an airdrop. The amount of income is the fair market value in USD of the airdropped coins when they are received in the wallet.
The crypto activity that must be included in the tax return are:
- Exchanging (Selling) cryptocurrency for cash
- Buying non-fungible token (NFT) with cryptocurrency
- Carrying out merchant payments using cryptocurrency
- Trading one cryptocurrency for another cryptocurrency
- Receiving of payment through crypto
- Staking and mining of cryptocurrency
- Receiving tokens from a hard fork.
- Receiving an airdrop.
- Mining of cryptocurrency as self-employment and economic activities (Spain)
Where do you report the crypto activity within the Tax forms? Tax rate.
In Spain it is necessary to report capital gains or losses as Rendimientos de Capital Mobiliario:
- With transmission – permutas, tardes, compraventas – or as capital gains – interests, platforms, staking – (taxed at 19%, 21% & 23% and the new 26% for gains higher than €200,000) cell 33.
- Without transmission – airdrops, referrals, forks – (taxed at 18% to 47%) cell 304 or 305.
In the US, crypto transactions should be reported in Form 8949 (Schedule D) as capital gains. The IRS states that new coins received through an airdrop are taxed as ordinary income and the amount of income is the fair market value in USD of the airdropped coins when they are received in the wallet, in Spain the airdrop is treated as a gift.
The rate at which cryptocurrency is taxed in the US depends on the duration of the asset held and the annual income. In the case of holding an asset for less than one year, it will be treated as short-term capital gains tax ranging from 10% to 37%. If the asset is held for more than one year, it will be counted as long term capital gains tax rate ranging from 0% to 20%.
Mining of cryptocurrency it is consider an economic activity, so it will be part of your self-employment or “Autonomo” activity.
Is there any other compulsory report to the tax administrations?
An informative report of assets and/or rights (shares, securities, accounts or real estate) that you have abroad is required to all fiscal residents in Spain, Modelo 720, which it was expected to have a new fourth block in 2022, to include cryptocurrencies, but it has been postpone until next year.
And in the USA is only a report of financial assets in the FinCEN114 and if applicable in Form 8938.
What happens if I don’t report my crypto taxes?
The IRS will audit anyone who fails to report their cryptocurrency taxes. It is necessary to state any of the activities mentioned above on Forms 1040, 1099-B, and 8949 honestly to avoid any penalties or potential imprisonment.
Crypto activity that is non-taxable
- Transferring of assets between exchanges.
- Donation of cryptocurrency to well-known causes.
- Gifting cryptocurrency.
- Buying cryptocurrency.
Recommendation to cryptocurrency users.
Since it is your responsibility to report all the transactions it is fundamental to keep a list of all exchanges and transactions to be reported. It’s recommended that you use crypto tax automation software to ease your calculation process. Do not hesitate to call us or Book a free Online Consultation Appointment