How is tax calculated on crypto currency conversions? (general question)

[crypto noob]

I am aware that converting your crypto to another type of crypto is a taxable event but how exactly is it calculated?

eg. My coinbase wallet I purchase 0.02789605 BTC for £1000 (includes buy fee of £38.37 fee)

I then convert 0.0278960 BTC for 7 LTC (at this point valued at £1050)

I then convert 7 LTC for 2949 XLM (at this point, valued at £1020)

I then receive 1500 XLM (from another wallet into this one) valued at £480

I then sell my 4449 XLM for £1609 (included a sale fee of £15)

The above is only an example and I am not seeking financial advice, I am only seeking an explanation how I should go about calculating this example.

In the scenario above how will the tax on crypto conversions be calculated? Also what is the total amount of capital gains in this scenario? The capital gains allowance in the UK is £12,000

Thank you for taking the time to read all of this. Much appreciated.

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[jackg]

You'd take whatever your profit is on the sale as a gain.

If you're wanting to track each trade, you'd take the initial £1k, and use your 2494 xlm and get £1054.67 and you've made £54.67 in profit (but then subtract the relative fee) .

Edit: for the whole year you could use:
Withdrawals + current value - (amount at last tax year + deposits).

[RickDeckard]

I guess it really depends on the tax laws that are applied to your home country quite honestly.

As an example, I'll show you what happens in my country whenever you have gains (profit) on the global activity (1 year) of trading stocks:

01/01/2020 - You buy 10 Stocks of Bitcoin Incorporated each at 100 dollars. You end up spending 1.000 USD.
31/01/2020 - BTC Incorporated had a tremendous Q4 and EOY results which made it hit 200 USD per shares at the end of the month. You're shares now are evaluated at 2.000 USD

You decide to sell those shares (you fear that the price may drop slightly given the recent price increase). You recover your initial 1.000 USD investment and you also get 1.000 USD as net profit. According to the law those 1.000 USD are taxable (let's say 20 %). After paying your taxes you're left with 800 USD for your own.

However, you are a skilled trader (or at least you think you are) and you decide that you should take that profit and invest it in Defining Field Pharmaceutical  at 01/02/2020, a company that's about to launch the results of the effectiveness of the COVID-19 vaccine. You get 100 stocks of that company for 10 USD each spending your 1.000 USD profit from before.

However, the trickster of COVID-19 proved to be quite sneasy and the results, published on 15/02/2020, revealed that the vaccine was only 20 % effective against the virus. The stock price went to 5 USD per stock. Your investment is now evaluated at 500 USD.

You decide that noone knows what might happen next and you sell all your position, netting you 500 USD. You had a net loss of -500 USD.

In the global fiscal year your tax payable profits would be : 1.000 USD from BTC Incorporated - 500 USD from Defining Field Pharmaceutical  = 500 USD. From those you would be left with 400 USD after paying your taxes to the government.

Again, this is just a simple calculation. In a similar set of orders, but being made on the stock market, the FIFO method is a tool that could be used in order to calculate the gains that one had over the course of several interactions of the same stock (1st bough is compared with 1st sold and so on).

This is, of course, only applied to stocks/financial products and it varies according to the country. According to your "movements" you would only have to sum all the gains ((1050-1000) + (1020-1050) + (1609-(1020+480))) = £129 .

This calculation can be wrong OP and I definetly recommend you to look for real financial help form a certified accountant. The official government page from UK[1] actually has some examples on this :

Example

Victoria bought 100 token A for £1,000. A year later Victoria bought a further 50 token A for £125,000. Victoria is treated as having a single pool of 150 of token A and total allowable costs of £126,000.

A few years later Victoria sells 50 of her token A for £300,000. Victoria will be allowed to deduct a proportion of the pooled allowable costs when working out her gain:
          Amount
Consideration         £300,000
Less allowable costs    £126,000 x (50 / 150)    £42,000
Gain         £258,000

Victoria will have a gain of £258,000 and she will need to pay Capital Gains Tax on this. After the sale, Victoria will be treated as having a single pool of 100 token A and total allowable costs of £84,000.

If Victoria then sold all 100 of her remaining token A then she can deduct all £84,000 of allowable costs when working out her gain.

[1] https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-for-individuals

[Bitcoin_Arena]

I always thought they only tax your gains as you are cashing out back to fiat and not the crypto to crypto trade profits and losses but well who knows, it could depend on the country's taxation laws too.

cointracker.io claim they can accurately calculate one's crypto tax but i advice before using them do some reading about what's supposed to be taxable and not taxable
One of the links that could help - https://www.cointracker.io/blog/crypto-tax-guide
You can also ask some questions in their community - https://www.reddit.com/r/Cointracker

[cryptoaddictchie]

Some country imposes tax based on gains. But from my understanding, the tax are already included in the sales of tokens or coins during trading. Cause exchange incurred fees which I assume considered as tax already. But I'm not sure of this. Assuming that tax is segregate from it. Good thing that we must pay it or else we can be considered as tax evasion.

[Findingnemo]

Assuming yourself as US residents then you need to pay taxes for your capital gains which could be short term gain or long term gains which depends on how long you held the crypto currency.

IIRC, you need to pay report taxes for each of your conversion, on the transaction one BTC to LTC where you made $50 then follow the same with all the transaction then find total profits you earned with all your trades.

Then calculate the tax amount based on Federal tax rate + State owe tax which varies on both cases with short term and long term.

I maybe wrong because I can explain for a single transaction clearly but this involves multiple conversion so asking a professional can give the accurate answers.

[traderethereum]

The tax calculation will vary in each country. That is the first thing you should know.
If you want to know more about how the tax will be applied on crypto conversion, you need to contact the institution that works for the tax to get a better explanation.
But if the tax applies from the exchange you already used to convert your crypto to fiat, you need to contact that exchange to ask about that, but I guess they will not explain to details because that is how their business is running.
If you ask here, you will get various answers because we all come from different countries, and some of us will not pay the tax to convert crypto to fiat, but we pay the tax in monthly expenses from our bank.
I only think the simple thing, as long as the money that I receive still bigger, I do not mind paying the tax (if that tax will be applied).

[OcTradism]

Tax policy and step to submit your tax report are different among nations. You have to follow the guide for taxation in your nation.

[Tutorial] Crypto taxes for beginners. You can read that topic and get some information for crypto taxes. It is general information and details will be related to your nation's law, tax policy and guides to make report.

[HabBear]

OP..you're doing it correctly. And converting your trades back to a single base currency - GBP in your case? - allows you to easily understand your gains and losses and determine your net tax obligation.

Does GB have different rates for long-term vs. short-term holding periods for the taxes on those gains?

The tax calculation will vary in each country. That is the first thing you should know.

The only thing that varies by country is the actual tax rate. The calculation, the formula is the same.