Comprehensive Guide to Common Questions on Crypto Taxation (2025 Latest Edition)

With the popularity of cryptocurrencies, tax compliance has become an unavoidable topic for investors. Whether you hold Bitcoin, participate in DeFi mining, or receive airdrops, understanding the taxable rules is crucial. This article outlines the core issues of virtual money taxation in 2025 to help you mitigate risks.

What is the nature of cryptocurrencies in terms of taxation?

The global mainstream view considers them as property rather than currency. This means that profits from transactions are subject to capital gains tax or income tax, rather than value-added tax on currency. For example:

• In Taiwan, virtual money is defined as a “highly speculative digital commodity,” and profits from transactions are classified as “property transaction income,” taxed according to Article 14 of the Income Tax Act.
• The IRS in the United States has clearly defined cryptocurrencies as “property” since 2014, applying property transaction taxation principles.
• Germany exempts tokens held for more than one year from capital gains tax, but short-term trading is considered ordinary income.

Which operations require tax payment?

Taxable events typically occur during asset transfer or liquidation stages:

1. Buying and Selling / Exchange
   • Converting cryptocurrencies into fiat currencies (such as New Taiwan Dollar, US Dollar).
   • Coin-to-coin trading (such as exchanging BTC for ETH) is considered “disposing of the original asset,” and the price difference needs to be calculated as income.
2. Passive Income Activities
   • Mining rewards, staking income, and liquidity mining distributions are counted as ordinary income at the market price at the time of acquisition.
   • Airdropped tokens are taxable when they become disposable (for example: declare $5 income when received at a value of $5), and subsequent sales are subject to capital gains tax.
3. Payments and Receipts
   • Accepting cryptocurrencies as payment for goods/services must be declared as business income.

Under what circumstances is tax not levied?

The following operations usually do not trigger a tax event:

• Purchasing cryptocurrency with fiat money and holding it.
• Transferring assets between personal wallets (e.g., withdrawing from an exchange to a cold wallet).
• Receiving cryptocurrency as a gift (but the giver must declare gift tax if it exceeds $18,000).

How is the tax rate calculated? Key factors are holding time!

The holding period is the core determining factor for the tax rate:

• Short-term holding (≤ 1 year) income is combined with ordinary income and taxed at progressive rates (e.g., 10%-37% in the United States).
• Long-term holding (> 1 year) is subject to preferential capital gains tax rates (0%/15%/20% in the United States).

Calculation example: If you buy 1 ETH for 1000 dollars and sell it for 2500 dollars within 1 year, the profit of 1500 dollars is taxed at the short-term tax rate; if held for more than 1 year, it is taxed at the long-term tax rate.

How to declare cross-border transactions and overseas income?

• Users from Taiwan
  • Profits from overseas exchanges withdrawn to Taiwanese accounts are considered “overseas income”.
  • Annual income exceeding 1 million New Taiwan Dollars must be declared, and the portion exceeding 7.5 million New Taiwan Dollars is subject to a 20% basic tax.
• US users must declare overseas platform earnings through FBAR (FinCEN Form 114) and FATCA.
• Large single withdrawals warning: In Taiwan, a single withdrawal exceeding 500,000 New Taiwan Dollars will be reported to the Investigation Bureau by the bank.

Common Compliance Misunderstandings

• Misunderstanding 1: “Small transactions do not need to be reported” There have been cases in Taiwan where failure to report led to the recovery of 130 million NTD in income, with a fine of 34.03 million.
• Misunderstanding 2: “Airdropped/forked tokens that have not been realized do not incur taxes” The United States, Australia, and others require income tax to be paid based on the market price at the time of receipt.
• Misunderstanding 3: Incomplete cost records and lack of cost proof may result in calculating costs as 0, leading to full taxation.

Legal Strategies to Reduce Tax Burden

• Long-term Holding: Prioritize meeting the >1 year holding period to qualify for lower tax rates.
• Loss Deduction: Annual net capital losses can offset taxable income (e.g., in the US, limited to $3000/year).
• Donating Cryptocurrency: Donations to compliant nonprofit organizations can reduce taxable amounts.

Core Summary

1. All transactions are traceable: Record the three key elements of date, amount, and purpose.
2. Holding time determines tax rate: >1 year is a critical threshold for tax saving.
3. Policies are continuously being updated: Taiwan’s “Virtual Asset Management Special Law” will be submitted for review by the end of 2025, and the U.S. 1099-DA form will be implemented in 2026, which requires close attention.

Tax regulations vary by region, and this article does not constitute professional advice. For large transactions or complex scenarios, please consult a tax attorney to ensure compliance.