A few days or weeks before the closing of 2019 tax return, it is important to specify the calculation of taxable gains in cryptocurrencies to guarantee the reliability of your declaration.
Some errors can be relatively costly if tax audit. So, it is interesting to know these good practices to be sure not to overpay or avoid steep fines. Here are the 3 most common errors encountered during cryptocurrency tax returns.
1. Do not declare your accounts abroad
Calculating and declaring taxable capital gains in cryptocurrencies is not enough. Every year, during the income tax campaign, it is necessary to declare your accounts held abroad. As specified in the General Tax Code, article 1736, failure to declare an account is liable to 750 euros fine per account and € 1,500 for an account whose portfolio exceeds € 50,000.
For exemple : a French tax resident has an open but never used Kraken account, a Binance account and a Coinbase account closed in 2019. Each of these accounts has a portfolio value of less than € 50,000. This individual is liable to a fine of 2,250 Euros in the event of non-declaration of digital asset accounts held abroad.
Front of Form 3916 Bis – Declaration of accounts abroad
💡 For information, accounts opened in 2020 are not to be declared this year (2019 income statement).
“The state has a department specializing in the verification of foreign bank accounts. A tax-adjusted citizen is listed as a fraudster and is much more likely to be subject to an in-depth tax audit. ”
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2. Do not take into account the entirety of your crypto wallet when calculating the overall gain
In this part we will see two elements that should not be overlooked and absolutely taken into account for the calculation of the overall surplus value.
Limit your calculations to operations after January 01, 2019
A taxable transaction is the sale of a crypto-asset:
- either against a state monetary currency;
- either for the purchase of a good or service.
In the year of income declaration N, only taxable transactions carried out during the same year N are taken into account. However:
To calculate the cost of acquiring cryptocurrencies, you need to have access to complete portfolio history since the first cryptocurrency purchase.
For example, an individual buys 1 Bitcoin in 2017 and resells it in 2019. It is necessary to know the purchase price in 2017 to calculate the gain or loss realized in 2019. To calculate it, it is necessary to ” identify the acquisition cost. Thus, it is essential to know the entire history of buying and selling cryptocurrencies since the first investment made.
Determine the total value of the portfolio without accounting for crypto-crypto transactions
In order to calculate a taxable amount using form N ° 2086, the French tax authorities ask you to provide the total value of the crypto wallet. This must be done during each taxable transaction.
So to correctly calculate this amount, you must value the entire cryptocurrency portfolio. It is therefore also necessary to account for the cryptocurrencies stored on cold wallet or cold storage wallet.
Not taking into account its storage portfolios (wallet) in the calculation of the tax is a false good idea.
The wallets do not have customer identification (KYC – Know Your Customer). They do not share account information with the tax authorities. Admittedly, the operations carried out via the storage portfolios are difficult to trace by the taxman. However, in case of doubt, the French tax authorities will ask the taxpayer for details of the account operations. By looking at it, it will quickly understand the lack of one or more accounts via crypto transfers whose reception or deposit is not identified.
3. Do not have an account book summarizing all transactions and detailed calculations
The French tax administration – with the 2019 Finance Law – has implemented a tax regime adapted to cryptocurrencies.
Under French tax law, the burden falls on the taxpayer to justify the amount of gain declared.
In case of additional request, or tax audit, the French taxpayer must provide proof of calculation of the information provided in the forms. When declaring income, a certain number of calculations are made to correctly fill in the form 2086 “Annex for declaration of capital gains or losses realized in 2019”. It is therefore advisable to take advantage of the moment to prepare the document making it possible to justify the amounts declared.
The latter must take over all the transactions in the crypto wallet (wallet and exchanges) and provide the information with the following operations:
- value ;
In addition, it is necessary to identify the taxable transactions in this summary table, and to complete the table with the following elements for each of them:
- value of the portfolio on the transaction date;
- total purchase price;
- total net purchase price;
- fractions of initial capital contained in the total purchase price.
This table diagram is provided for information only. Its purpose is to help you complete Form 2086 and to justify the calculation of your capital gain.
Hopefully this article will have helped you in calculating and reporting taxable earnings.
Article written by Pierre Morizot, co-founder of Waltio.
Disclaimer – The information provided in this article is for informational purposes only. In no case should they be considered as legal, tax, financial or investment advice. The company Waltio declines all responsibility in the event of information, comment, analysis, opinion, advice and / or recommendation proving to be inaccurate, incomplete or unreliable or leading to investment or other losses.
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