When do you need to declare cryptocurrencies on your tax return?

The Tax Agency has an increasing number of sources of information to verify the data that each taxpayer provides in their income tax return. Among the most recent are cryptocurrency trading platforms —specifically those based in Spain— which are required to provide tax authorities with data on account holders and transactions. This year, the fiscal data collected by the authorities includes 1.24 million notifications to taxpayers known to invest in cryptocurrencies.

Transactions that must be declared

Eleven people work in their office in Zaragoza, where they are currently accelerating the processing of income tax returns involving cryptocurrencies, just three weeks before the submission deadline on June 30. He explains the situations in which investing in cryptocurrencies affects tax obligations. “We must declare all the sales we make,” he points out. And this applies not only to situations where “we exchange one cryptocurrency for euros,” but “also if they are exchanged for others.” This is in addition to other cases, such as receiving rewards from staking, mining, and airdrops.

The Spanish Association of Tax Advisors (AEDAF) explains that in the case of currency exchanges, "the treatment of this transaction consists of the existence of a capital gain or loss attributable at the moment of delivery, according to the contract." To calculate the amount to be declared, the “difference between the transfer value and the acquisition value must be included in the taxable base of the savings, as this involves the transfer of an asset.”

If a currency exchange occurs, advisors agree that “a capital gain or loss is also realized, calculated by applying the swap rule.” In this case, the difference is calculated between the acquisition value of the transferred virtual currency and the higher of the two following values: “the market value of the transferred virtual currency and the market value of the asset or right received in exchange.” This will be recognized at the time of the exchange and will also constitute income to be included in the taxable base of savings. CRYPTO points out that, as with other financial assets, “if losses are incurred, they can be offset against gains during the following four years” when filing tax returns.

Complex calculations

Lorente points out that the difficulty lies in making these calculations because all transactions performed on all platforms must be recorded. “Incorporating the data into the income tax return is easy because you only need to fill in the fields; the complicated part is the preliminary calculation of the amount to be entered, as all transactions must be calculated.”

For this reason, the tax consultancy explains that it is necessary to keep “a complete and detailed record of all cryptocurrency transactions.” This should include the date, type of transaction, amount of cryptocurrency, value in euros at the time of the transaction, and any associated expenses.

Failure to declare, omissions, and errors relating to investments in cryptocurrencies are considered tax offenses. The consultancy highlights the fines for not declaring on the income tax return: “If they do not include their gains on the income tax return, the tax authorities can impose fines ranging from 50% to 150% of the defrauded amount.”

Access the full content here.