Are you receiving a crypto airdrop and are wondering about taxes? In many countries there will be a tax bill attached when you receiving coins from a new crypto airdrop.
Today, we explore all about taxes when receiving crypto airdrops across countries.
In this article:
5 ways a crypto airdrop impacts your taxes:
A crypto airdrop occurs when you receive new tokens. This can be from some marketing campaign or by holding an existing cryptocurrency.
In the U.S., when you received a crypto airdrop, even if you didn’t do anything in return to get them, you’ll be liable for income taxes. If you later dispose of them, you may need to pay capital gains taxes.
In Australia, the tax office classifies the receipt of a crypto airdrop as a taxable event liable to income tax.
In the U.K., if you enter a contest to win airdropped tokens from a new project, you’ll be liable for income taxes, even if the amount you won was small. If you receive new tokens without doing anything in return, you may be set tax-free.
Keeping your transaction records updated is key to determine accurate costs for calculating capital gains taxes when selling your new crypto airdrop tokens. Sign up to CoinTracking and we’ll automate the entire process in a few steps.
But, what is a crypto airdrop?
A crypto airdrop comes in a variety of forms, but they all mean receiving new crypto on your wallet, in a similar fashion to what we’ve seen regarding hard forks. As a result, you receive a new amount of tokens by holding the original cryptocurrency.
On most occasions, enthusiasts have to subscribe to a new service looking to raise awareness, start receiving marketing campaigns, or enter a challenge/game to earn new tokens. In January 2016, a lucky Decred holder received more than $32K in free DCR (Decred’s token).
Do you want to be the next lucky winner? You can follow upcoming projects offering airdrops from a variety of sources.
Free coins sounds great, but security comes first.
As with hard forks, the first steps should be to evaluate the legitimacy of the crypto airdrop, especially from a security point of view.
Unfortunately, the crypto sector is still a target of some scammers trying to capture private keys and steal your holdings.
To avoid these issues, be aware of the project’s motivation, team profile, and the information/process required to claim the airdrop.
Assuming you already own the original tokens that will grant you the right for new coins (e.g., Ethereum), you’ll only need a secure wallet to hold your new tokens.
For tax purposes, don’t forget to have proper registration of the market value at the time of the token receipt.
Do you pay taxes on a crypto airdrop?
In some crypto tax guides, the words airdrop and hard forks often appear together due to the similar way that users receive the new tokens.
However, the same tax guides can have considerably different tax treatments for both situations.
Let’s explore how airdrops can impact your taxes this season and help you navigate the nuances.
Is a crypto airdrop a taxable event in the US?
The amount you owe is equal to the market value of the tokens at the time you received them.
A notable caveat to this rule is the assurance that you have full “control” of the tokens. The taxable event will be delayed until the tokens are available to you.
As in other geographies, when you dispose of these new crypto airdrop tokens, you may be eligible for capital gains taxes and need to keep a record of the cost of the new tokens (market value at the time you received them).
How is a crypto airdrop taxed in the UK?
According to the UK crypto tax guide, receiving a crypto airdrops does not constitute a taxable event (capital gains or income taxes) if you don’t do “anything in return (for example, not related to any service or other conditions).
”This is also true if you’re not “part of a trade or business involving cryptoassets or mining.”
Entering a social media contest for the chance to win tokens takes you out of the income tax exemption since you’re doing something to be eligible to earn new crypto, thus being liable to income taxes at the time you receive the coins.
The HRMC clarifies that when you provide such a service, you’re liable to “income tax as miscellaneous income” or as “receipts of an existing trade.”
On the other hand, if you hold a type of crypto that launches an airdrop for existing holders without any prior qualifying scheme, you are not liable for income taxes since you are not providing anything in return (e.g., subscribing to a newsletter).
Selling new airdropped tokens? Watch out for capital gain tax.
If you are not liable for income taxes when you receive your crypto airdrop, you may still be obliged to pay capital gains taxes if you have a profit from selling them at a later time.
The same is true if you paid income tax before for any service provided and then dispose of these assets with a gain.
Are crypto airdrops taxable in Australia?
In Australia, the taxation office (TAO) guide for cryptocurrencies distinguishes individuals from business crypto activities while giving specific examples for several situations you may encounter yourself (e.g., staking rewards, ICO’s).
Its guide considers a crypto airdrop as the receipt of new tokens as ordinary income at the time you gain control of them:
“The money value of an established token received through an airdrop is ordinary income of the recipient at the time it is derived.”
The TAO clarifies that the new airdropped tokens’ cost base is “their market value at the time they were derived.”
Do I pay taxes for crypto airdrops in Germany?
In Germany, receiving a crypto airdrop is not a taxable event.
Clear record keeping leads you to not overpay capital gains.
We’ve covered the importance of keeping updated records and maintaining consistent accounting methods to assure that the base cost and potential profit of each transaction are accurate.
According to Crypto Tax Girl, one of the main issues traders face is not conciliating transactions after just uploading transaction records, possibly leading you to overpay on your capital gain taxes.
Working with a professional CPA and a powerful tool as CoinTracking can simplify your life.
Ask one of our Full Service customers, on how Sharon Yip, is helping him to manage all his crypto taxes:
“Sharon Yip has been extremely helpful in collecting and updating my multiple crypto accounts and compiling them for my accountant’s preparation of my taxes. She at all times was everything you could hope for in assisting me. She was knowledgeable, prompt, diligent, and always available. I highly recommend her.”
If you’re looking for similar personalized help, we’ll connect you with qualified tax professionals by signing up for our Full Service, benefits from features, and tailored advice for your current tax situation.
Follow our weekly AMAs on Twitter where Sharon answers your crypto tax questions.
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Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.