If you are an active crypto user, optimizing your tax liabilities and reporting your taxes in a compliant manner can be a quite cumbersome process. So, if you want to get a good night's sleep and not worry about receiving a tax audit letter any day, it is best to tackle the topic sooner rather than later.
Luckily, there are some tips and tools, which can help you stay on top of your taxes and avoid any pitfalls. In this blog, our partner Blockpit – a leading crypto tax solution provider – will give some insights into the most important lessons and money saving opportunities, specifically when it comes to taxes in your country.
Wirex offers a wide variety of financial products, which not only broadens your options when investing, but also enables strategic optimization of your trading behavior in terms of taxes. Let’s take a look into the differences when using the various instruments.
Invest and Trade
- Cryptocurrencies
Buying and selling crypto assets in the spot market is probably the most common way to invest, but the calculation of tax liabilities differs greatly per country. While it mostly is about the delta between acquisition cost and realization value to determine profits and losses, the sequence in which your coins and token are expended can make a huge difference. Some countries dictate so-called FIFO (First-In-First-Out) or ACP (Average Cost Pricing), while others allow more exotic methods like LIFO (Last-In-First-Out) or HIFO (Highest-In-First-Out).
- Wirex Multiply
The instrument behind Wirex Multiply is a so-called derivatives contract, which most jurisdictions treat differently than spot trading. Using this product with a 1x lever, you might get the same financial outcome as buying the asset in spot, but the tax treatment might be more or less favorable, depending on your tax residence.
The potential tax you pay on your crypto activities will vary depending on where you're based. Different countries have different tax rules for different trading instruments. In Germany for example, Wirex Multiply falls under Capital Gains Tax (25%) while Cryptocurrencies Spot Trading is subject to Income Tax (0-48%), but tax-free if you hold your asset for at least one year.
Earn and Borrow
- Wirex DUO
Providing liquidity is a great way to earn passive income, but don’t forget about the tax implications. Lending out money leads to interest-like income and needs to be declared as such in most jurisdiction.
- Wirex credit
Borrowing against your assets is probably the best way to save on taxes. If you never sell your crypto, you do not trigger a realization and potential taxable event. This strategy is often used by billionaires like Jeff Bezos or Elon Musk, who rather take out a credit backed by their stock holdings than sell them to avoid taxes. With Wirex credit everyone can do it, just collateralize your crypto holdings and borrow against them. This process does not trigger any tax liabilities, as long as your collateralized assets do not get liquidated to pay back the loan (which could happen if a sharp decline in value happens and the borrow threshold is no longer met).
- X-Accounts
Similar to Wirex DUO, simply lending out assets and receiving interest on them, needs to be considered in your tax declaration as income.
Card and Banking
- Wirex card
Spending your crypto to purchase real-world goods and services is mostly seen as a taxable event, similar to selling your assets to FIAT currency. When using the Wirex card, your assets get converted into Dollars, Euros etc. at market value at the moment of payment and the vendor receives the preferred currency. Be aware that you might be realizing gains or losses here, if the asset you are spending has gone up in value against the vendor's native currency since you purchased it (less likely for stablecoins)
Receiving Cashback upon your purchases is tax-free in most jurisdictions.
Rewards
- Refer-a-Friend
Getting a reward for onboarding a friend to Wirex is a great bonus, but can fall under the category of income in certain countries. Often there is a free limit of annual income that’s not taxable, so don’t worry about telling a bunch of your friends about Wirex.
- Discounts
Using a discount provided does not trigger any taxable event, so you can save without the need to worry about any implications.
If you want to learn more about crypto taxation and how to file a report in your country, you can check out extensive guides here.
To get insights into your potential tax liabilities and optimization possibilities, you can simply create an account at Blockpit.io and import your Wirex transaction history. The software also allows you to add other accounts and wallets to get a complete overview of your crypto activity and easily generate an extensive tax report.
Blockpit is mostly free to use, but if you want to purchase a license to gain access to extended features, all Wirex users benefit from a generous -15% discount. You can claim it by registering via your Wirex profile here.
Additionally, as part of Blockpit's "German Tax Deadline" campaign, you can enjoy a -25% discount until 02.09.2024 by entering "WIREX25" at checkout.
*The prices of Cryptoassets fluctuate, sometimes dramatically. The price of a Cryptoasset may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling Cryptoassets.
*Crypto products, including Wirex Multiply and Wirex Multiply can be risky for users. The value of your assets may decrease significantly lead to a total loss, and there may be no regulatory recourse for any loss from such transactions depending on your location. Please do your research thoroughly. Subject to location of the user, the Terms and Conditions and Privacy Policy.
*Some Cryptoassets and orders may be subject to the tax laws and regulations in an applicable jurisdiction. The tax treatment and accounting of Cryptoassets (and any ancillary benefits) is a largely untested area of law and practice that is subject to changes. Tax treatment of Cryptoassets may vary amongst jurisdictions. We may receive queries, notices, requests or summons from tax authorities and as a result may be required to furnish certain information about the order. Among the accounting profession, there are no agreed standards and practices for how an auditor can perform assurance procedures to obtain sufficient audit evidence for the existence and ownership of the Cryptoassets, and ascertain the reasonableness of the valuations. If you are unsure about the tax implications of your orders, you should seek independent professional advice before carrying out an order.
*Availability for Wirex Credit may differ by region. All credit lines are provided in stablecoins. Cryptocurrency is volatile and all lending is conducted at the user's risk. Subject to the T&Cs and Privacy Policy.