Crypto Taxes for Freelancers and Remote Workers: In-Depth Guide
Crypto taxes for freelancers and remote workers mean paying capital gains taxes on profits and income taxes if you earn or get paid in crypto. But the catch is–freelancers can deduct business expenses, including home office and software costs.
Cryptocurrency is becoming a popular choice among freelancers and remote workers. A recent survey by Zero Hash found that 93% of freelancers around the world want to get part of their income in crypto or stablecoins. Also, almost two-thirds of freelancers would rather get paid in stablecoins than in their local money.
So, whether you’re paid in stablecoins for a project or trading Bitcoin as an investment, knowing how to handle your crypto taxes is crucial. This guide will simplify crypto taxes for freelancers and remote workers and offer practical advice for them to stay compliant and efficient in their tax reporting.
Basics of Crypto Taxes
Before we dive into the nuances of crypto taxes for freelancers and remote workers, let’s get the basics out of the way.
Common Tax Terms and Definition
Before we dive into the nuances of crypto taxes for freelancers and remote workers, let’s get the basics out of the way.
Cost Basis: The cost basis is the original value of your crypto. This includes the purchase price and any fees you paid. You use this amount to calculate your capital gains or losses when you sell. Check out our guide on crypto accounting methods to learn more.
Fair Market Value (FMV): Fair Market Value is the price your crypto would sell for on the open market. This value helps determine your income and capital gains.
Capital Gains and Losses: Capital gains and losses are the profits or losses from selling or exchanging crypto. Short-term gains (for assets held less than a year) are usually taxed at a higher rate than long-term gains (for assets held more than a year).
Ordinary Income: Ordinary income is the money you earn from work, services, or other activities. It is taxed at regular income tax rates.
How Crypto is Taxed?
In many countries, including the U.S., crypto is treated as property for taxes. This means the same tax rules for property apply to crypto transactions.
When you sell or trade crypto, it’s subject to capital gains tax, similar to selling stocks or other investments. Additionally, when you receive crypto as income or salary, it’s subject to ordinary income tax.
The following is a breakdown of all key tax events and their nuances:
Buying Cryptocurrency: Buying crypto with fiat money (like USD) is usually not taxable. However, you must keep detailed records of the purchase price (cost basis) to calculate future gains or losses.
Selling Cryptocurrency: When you sell crypto, calculate the gain or loss based on the difference between the selling price and the cost basis. This gain or loss is subject to capital gains tax.
Trading Cryptocurrency: Trading one crypto for another (like Bitcoin for Ethereum) is a taxable event.
Suppose you bought 1 Bitcoin for $10,000 and later traded it for 20 Ethereum, worth $15,000 at the time. This $5,000 difference is your capital gain, which you must report on your taxes. The tax rate depends on how long you hold the Bitcoin before trading it.
Earning Cryptocurrency: If you get cryptocurrency as payment for work or products, it’s considered income. Report it at its fair market value on the date you received it. This income is subject to regular income tax.
Note that you will have to pay capital gains tax again if the value of your earned crypto increases and you sell it in the future.
Buying Goods or Services with Cryptocurrency: Using crypto to pay for anything is taxable. Report the fair market value of the crypto on the date of the transaction. The difference between this value and your cost basis is a capital gain or loss.
For example, suppose you bought 1 Bitcoin for $5,000. Later, you use it to buy a laptop worth $10,000. You need to report the Bitcoin’s value at $10,000. Then, your capital gain is $5,000 ($10,000 – $5,000), and you must pay capital gains tax on this amount.
Mining Cryptocurrency: If you mine or stake cryptocurrency, the fair market value of the coins or rewards on the date you get them is taxable income. If you later sell or trade these coins, you must report any capital gain or loss. Check out our guide on crypto mining taxes and crypto staking taxes to learn more.
Important Note: Although this is the standard crypto taxation framework in most countries, there are exceptions. Take India, for example. They have a fixed tax rate of 30% (+ TDS) on any profit made from Virtual Digital Assets. So, the crypto taxes for freelancers and remote workers in India is 30% on the FMV whether you sell, spend, swap, earn, mine, etc.
Crypto Taxes for Freelancers and Remote Workers
Whether you work from home, freelance, or commute to an office–selling, spending, or trading crypto means you have to pay capital gains taxes in many places like the US, Canada, and Australia.
But if you earn crypto or get paid in crypto for your work, the rules are different. In most places, if you receive crypto as payment for goods or services, you must report it as ordinary income. You report the fair market value of the crypto on the day you receive it. This value becomes your cost basis for any future transactions involving that cryptocurrency.
But we already knew this. What’s different about crypto taxes for freelancers and remote workers?
Freelancers and remote workers can often deduct business-related expenses from their taxable income. If you use part of your home only for business, you might qualify for a home office deduction. This lets you deduct a portion of your home expenses (like rent, mortgage interest, and utilities) based on the size of your home office compared to your whole home.
Also, expenses for software and tools used for your job or to manage and track crypto transactions can be deductible.
But what if you’re working remotely from a different country?
Crypto Taxes for Digital Nomads
Getting paid in crypto is becoming more popular among digital nomads because exchanging foreign money can be complicated and expensive. The same survey by Zero Hash found that 65% of freelancers missed job opportunities because they couldn’t easily exchange currencies. Also, 69% said that getting paid in crypto or stablecoins would help them work with clients around the world.
If you’re a freelancer or remote worker operating from different countries, you need to understand how each country treats cryptocurrency for taxes. Double-check the rules in every country where you earn income to make sure you comply and avoid double taxation.
Crypto taxes for digital nomads can be tricky. You need to know the tax rules in each country you stay in and understand how tax residency and international treaties work. Keep detailed records of your crypto transactions and travel logs. It’s also a good idea to consult with tax experts to manage your global tax obligations.
Check out our in-depth guide on crypto taxes for digital nomads to learn more.
Common Crypto Tax Challenges for Freelancers and Remote Workers
Dealing with crypto taxes can be daunting, especially for freelancers and remote workers. Here are some common challenges you may face and strategies to overcome them:
1. Keeping Accurate Records
Crypto transactions can be many and complicated, making it hard to keep accurate records. Freelancers and remote workers often have many unorganized income sources, including crypto payments, staking, and yield farming. For example, tracking earnings from multiple freelance jobs paid in various cryptocurrencies can be chaotic. Adding complex transactions like staking rewards makes it even harder to report all income accurately.
Solution: Use a dedicated crypto tax software like Bitcoin.Tax to automatically record all transactions. Connect all your exchanges and wallets to the software to avoid missing logs and transactions. Regularly check the date, amount, cost basis, and fair market value of each transaction to find any errors. Keep your records updated to avoid last-minute rushes during tax season.
2. Calculating Cost Basis
Determining the cost basis of each crypto transaction can be tricky, especially with many transactions and DeFi activities. For example, buying Bitcoin at different times and prices, and then using it in various DeFi transactions, can make tracking cost basis hard.
Solution: Use software that connects with exchanges and wallets to automatically calculate your cost basis. These tools can use methods like First In First Out (FIFO) or Specific Identification to make the process easier. Bitcoin.Tax, for example, lets you change your accounting method each year to find the best tax outcome.
3. Understanding Tax Forms
Crypto tax laws can be complex and vary by country. It can be confusing to understand what is taxable and how to report it on the right forms. For example, in the US, you must report crypto earnings on forms like 1040 Schedule D and Form 8949. In other countries, the forms and rules might be different.
Solution: Stay informed about the latest tax regulations in your country by checking out our country-specific crypto tax guides. Also, consult a tax professional who specializes in cryptocurrency. They can provide accurate advice and guidance tailored to your situation.
FAQ
Is salary in crypto taxable?
Yes, the salary paid in cryptocurrency is taxable. You must report the fair market value of the cryptocurrency on the day you receive it as ordinary income. This amount is subject to regular income tax.
Is crypto income subject to self-employment tax?
Yes, crypto income can be subject to self-employment tax if you earn it through freelance work or a business. In most countries, self-employment tax and income tax are often the same. The difference is that you can usually deduct business expenses when reporting self-employment income. However, this can vary by country, so check your local tax laws or consult a tax professional.
Which country has no crypto tax?
Some countries have no crypto tax or very favorable tax policies for cryptocurrency. These include:
- Dubai: No tax on crypto at all. Read why it’s considered a crypto tax haven.
- Germany and Portugal: No tax on crypto held for over a year.
- Singapore and Slovenia: No capital gains or income tax on crypto for regular investors and traders.
Check out our list of the top 10 crypto tax-free countries for more.