How to declare cryptocurrency taxes with Divly
Updated: 3 March 2021
This article aims to serve as a guide on how to calculate and pay taxes on cryptocurrency by using Divly. It is used best in conjunction with creating your annual crypto tax report. If you have not already, you can sign up to Divly for free to get started.
Many countries have a local tax authority that by law requires you to pay taxes on all the profits or losses you made related to crypto. This can vary from gains you have from buying and selling crypto, to earning crypto as a salary. The important matter to consider is, as a citizen of your country:
- Do you need to pay taxes based on crypto transactions?
- How are crypto taxes calculated?
- How do you report your crypto taxes to the local tax authority?
If you live in a country where cryptocurrencies are taxed, once a year you will need to create a crypto tax report. A crypto tax report is simply a summary of your crypto activity incurred within one financial year, which can then be submitted to your local tax authority. Based on the information provided, the local tax authority will determine the amount of taxes you need to pay or have refunded.
Divly's purpose is to help you get to that end goal as quickly and correctly as possible. Calculating taxes on your crypto can be a tedious process even if you only made a few transactions. It can be especially brutal if you have many scattered wallets, used several exchanges, actively traded, staked, maybe you even lost some keys in the process!
We've been their ourselves, and that's why we built Divly. This guide will help you use Divly so that you can spend more time on other things in life than reporting taxes, whether that's done hanging out with your family, working, or mastering the art of office ping-pong.
Overview of the steps
When using Divly to help automate your crypto tax report, there are six steps in total. Most aspects of these steps are automated by Divly, and often you can skip some of the steps entirely!
- Wallets: Import your crypto transactions.
- Transfers: Match transfers between your own wallets.
- Labels: Correctly label withdrawals and deposits.
- Error Handling: Provide missing data for a list of screened transactions.
- Transactions Overview: Check that everything looks as expected.
- Tax Report: Download your tax report and submit it to the local tax authority.
If you use our Step by step guide provided in the platform, it will take you through the full process from start to finish. This is suggested if you either have fewer transactions or less experience with declaring crypto taxes.
You can always skip back and forth between the steps or choose not to use the Step by step guide. This is useful if you have a lot of transactions to import from multiple exchanges and wallets and prefer not to do everything in one sitting.
Once you have signed up to Divly, set your local currency and country to unlock the features. It is important to choose the right local currency and country asettings as we base all the tax rules and currency conversions on them!
The first step requires you to import all your crypto transactions into Divly so we can start calculating your gains. Divly is constantly providing new integrations with your favorite exchanges, blockchains, and wallets to make this process seamless.
When adding a new wallet, search for your provider and click on it if it exists. From here you can follow the providers individual guide that can be found on our integrations page. If your favorite provider is missing, please contact us at email@example.com and we will start working on integrating it.
Integrations will either be done through an automated import or a file import. Automated imports can easily be updated over time once you have set it up. To set up an automatic import, follow the individual provider guide. File imports require you to download a CSV file from the provider and then upload it to Divly. Every time you want to include new transactions you will need to download a new CSV file.
Once you have added a new wallet it will show up under My wallets & exchanges
Do I Need To Import All My Transactions?
To calculate taxes correctly you must import ALL your crypto transactions from the very start. We calculate your cost basis (a fancy way of saying what you bought your crypto for) starting from your first transaction to ensure you pay the right amount of taxes. If you don't include all transactions, you can end up paying more taxes unnecessarily! :(
What If I Lost My Transaction History?
If you are missing old wallets or trades and have lost supporting documentation, we recommend you add a deposit manually that represents these coins and set the net worth amount to 0. This will assume you bought the coins for 0 USD (in local currency) when you sell them. It is safer to be on the right side of the law by paying too much in taxes, rather than too little if you happen to be investigated.
Transfers occur when you send crypto from one of your wallets to another wallet. It is important to correctly account for transfers to avoid paying taxes unnecessarily. Divly automatically matches transfers for you, yet in some rare cases you may need to confirm possible transfers.
Divly will match transfers for you automatically when we find a withdrawal from one wallet corresponds with a deposit in another wallet. We have built an algorithm to do the heavy lifting for you. To ensure all transfers are matched, make sure that you have imported all your wallets in the previous step. A withdrawal will by default be treated as a sale of crypto, which is a taxable event in most countries. You want to avoid this from incorrectly happening.
The majority of people will never encounter the need to match possible transfers. However, in rare cases when there are several matches possible, Divly needs to confirm with you which transfer is correct. This can happen if for example if two withdrawals of a similar size were made approximately at the same time, and one or more deposits followed suit. Divly allows you to easily resolve this by allowing you to match the correct transfers manually within our interface.
There are four types of transactions in Divly: withdrawals, deposits, trades, and transfers. This section is all about accounting for withdrawals and deposits.
To calculate taxes correctly, Divly provides a system to label withdrawals and deposits. Labeling these transactions correctly can have a notable effect on your taxes. How it affects your taxes depends on your country. Divly provides tax guides for supported countries where the effect of each label is explained in detail. As long as you filled in the correct country during the onboarding (can be changed in Divly under Settings), we will apply the tax calculations accordingly.
Divly will automatically label transactions if the data is provided during the wallet import. Often the data is not available, and you will need to use Divly's interface to set the correct labels.
A withdrawal occurs when you send crypto out of your wallet. By default, Divly assumes you have sold your crypto at the daily market rate when a withdrawal occurs. This is unless the withdrawal is labeled or matched with a deposit to form a transfer.
Gift: Use this label if the transaction represents have a gift to someone else in crypto.
Donation: Use this label if the transaction represents a donation to an organization in crypto.
Lost: Use this label if you have lost the crypto that was withdrawn.This could happen if you sent crypto to the wrong address or lost the private keys that control it.
Spending: Use this label if a transaction represents a purchase you made for a good or service with crypto. For example, if you purchased a space suit.
Realized loss: Use this label if the transaction represents a realized loss for margin trading or derivatives trading.
Swedish loan out: This label only applies to Swedish citizens. Use this label if you have given a loan in crypto or if you have staked crypto. Special tax laws apply to these transactions in Sweden. Read more about it in our tax guide for Swedish citizens.
A deposit occurs when you receive crypto to your wallet. By default, Divly assumes you have purchased crypto at the daily market rate when a deposit occurs. This is unless the deposit is labeled or matched with a withdrawal to form a transfer.
Airdrop: Use this label if a transaction represents and airdrop. An airdrop is when you are given a token for free by the creators of that token. You can read more about airdrops online.
Fork: Use this label if you received a crypto in the process of a blockchain forking. A fork occurs when the underlying blockchain splits into two different protocols, each with their separate crypto. You can read more about forks online.
Mining: Use this label if a transaction represents income from mining. Mining is the process that keeps Bitcoin and other cryptocurrencies secure (those that use Proof of Work). Miners use hardware to repeatedly solve a complex puzzle and are rewarded with crypto in return.
Staking: Use this label if a transaction represents income from staking. Staking is the process that keeps Ethereum 2.0 and other cryptocurrencies secure (those that use Proof of Stake). Validators stake their crypto and are rewarded with crypto for locking up capital and validating transactions on the network.
Reward: Use this label if a transaction represents a reward from for example referring new customers or liking a Facebook post. Any crypto you received that required you to perform a task, should be considered as a reward (not for example an airdrop).
Other income: Use this label if a transaction represents any other form of income. This includes income from freelancing or being paid a salary in crypto.
Loan interest: Use this label if a transaction represents interest income associated with a loan you have provided.
Realized profit: Use this label if the transaction represents a realized profit for margin trading or derivatives trading.
Swedish loan in: This label only applies to Swedish citizens. Use this label if you have been repaid a loan in crypto or if you have withdrawn your staking deposit. Special tax laws apply to these transactions in Sweden. Read more about it in our tax guide for Swedish citizens.
4. Error handling
This step is intended to help highlight and find any potential issues that may affect your tax outcome wrongly. Divly effectively screens all transactions and displays the potential issues in a list for you to manage. Currently the following categories of issues are handled in this step:
Currency Value Unavailable
For most cases Divly can automate and handle all currency rate conversions for you. We have sophisticated methods of fetching both crypto and fiat prices on a daily basis. However, for many smaller and less common altcoins, reliable market prices can be hard to come by. This is often the case with airdrops.
In these situations, we ask that you fill in what the net worth amount should be for the entire transaction. The net worth amount is the total value of what the coins are worth in your local currency. For example, if you receive 5 CAT which are worth 1 USD each, then the total net worth amount is 5 USD.
If you do not provide a net worth amount, Divly will assume the value is 0.
5. Transactions overview
Once you have walked through the previous steps, Divly will present you a list of all your transactions. Here you can filter and drill down into every transaction at your pleasure. You are also able to add, edit, and delete transactions. Every time you make a change, Divly will automatically start recalculating your gains in the background.
If everything looks as expected, you can continue to the final step.
If you need to make changes, the transactions overview provides very flexible filters and tools to do so.
You can manually add deposits, withdrawals, and trades in Divly. Transfers are matched automatically if certain rules are met. To add transactions manually in Divly, make sure you have access to the required information.
Deposit: Deposited Amount, Currency (e.g. BTC), Date, Time, Wallet, Label (optional).
Withdrawal: Withdrawal Amount, Currency (e.g. BTC), Date, Time, Wallet, Label (optional).
Trade: Bought Amount, Bought Currency (e.g. BTC), Sold Amount, Sold Currency, Date, Time, Wallet, Fee Amount (optional), Fee Currency (optional).
Transfer: You can replicate a transfer by adding both a withdrawal and a deposit that occurred within 12 hours of each other. The withdrawal must occur before or at the same time as the deposit. The deposit amount must be no less than 20% of the withdrawal amount. The currency type must be the same.
You can choose to edit existing transactions in the list. Some values can be changed in the display once you click on the transaction. Remaining values can be changed if you click the small pen on the right-hand side.
You can choose to delete a transaction in the list if needed. This is simply done by clicking on the red trash icon on the right-hand side.
6. Tax report
Congratulations you made it to the final step! The tax report step summarizes your overall gains by cryptocurrency and tax category (capital gains, income etc). You can sort by year on the top right-hand corner. Make sure to use the correct year for your tax report!
If there are any outstanding potential issues, we will highlight them on the top of the page.
If you are satisfied with the result, you can choose to pay to download the crypto tax report in a format that can be submitted to the local tax authority. Depending on your country, we will supply you with a report that is customized to suit your local tax authority's requirements. Steps on how to submit this file can be found in your country's tax guide on Divly.
For questions, feedback, and support
If you have any questions, feedback, or need support, then we will gladly lend you a hand. We constantly seek to help make our customers lives easier and would love to hear from you.
The best method of contact is to write to us in the chat popup in the bottom right-hand corner of the screen. Alternatively, you can send an email to firstname.lastname@example.org.
Good luck with filing your crypto taxes! /Founders Carl & Ruben