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How to Calculate Cryptocurrency Profit Before Tax

16th January, 2024

The crypto market is growing rapidly in the UK and is expected to show an annual growth rate of 10.27% from 2024-2028.

Cryptocurrency investment can be thrilling yet complicated – you can celebrate big wins but experience big losses too. However, this is a risk that you have to take to make a profit from your crypto investments.

When investing in crypto, it’s important to keep a close eye on your profits to ensure financial success and compliance with UK tax regulations.

In this guide, we’ll be exploring the ins and outs of calculating crypto profits before tax, providing you with the knowledge you need to make informed decisions and maximise your returns.


A Simple Guide to Calculating Your Crypto Profits Before Tax

  1. Understanding Crypto Profit
  2. What Are the Factors That Influence Crypto Profit?
  3. How Can You Calculate Realised Gains
  4. Calculating Unrealised Gains
  5. Tax Implications
  6. Crypto Tax Worries? We Have You Covered


Understanding Crypto Profit

Before we dive into the calculations, it’s important that you have a thorough understanding of crypto earnings.

Crypto profit is the positive difference between the amount you initially invested in a cryptocurrency and the current value of your holdings. This can result from a combination of factors, including price appreciation, dividends, and crypto trading gains.

To calculate crypto profits, you need to consider both realised and unrealised gains:

  • Realised gains are profits from completed transactions
  • Unrealised gains represent the potential profit from your current holdings

Keep in mind that taxes are generally applied to realised gains, and you must accurately determine these to meet tax obligations.


What Are the Factors That Influence Crypto Profit?

There are many factors that can influence your crypto profit, and it requires careful consideration. Here are some key factors to keep in mind:

Cryptocurrency prices are volatile – Market fluctuations can significantly impact your profit. It’s essential to monitor the market regularly to stay informed about potential price changes.

Crypto transactions often come with associated fees – These fees, whether incurred during buying, selling, or transferring assets, should be factored into your profit calculations to provide a realistic picture of your returns.

The duration for which you hold a cryptocurrency can affect your tax liability – Short-term gains are generally taxed at higher rates than long-term gains. Understanding your holding period is crucial for accurate profit calculation and tax planning.

So, to calculate your crypto profit before tax:

  • factor in crypto gains
  • account for investment trading fees
  • utilise a comprehensive crypto tax calculator to ensure a precise assessment of your overall returns from your crypto investment activities


How Can You Calculate Realised Gains

To calculate your realised gains, you’ll need to consider the following factors:

  1. Determine the total amount you invested in a specific cryptocurrency. This includes the purchase price of the coins or tokens and any associated transaction trading fees.
  2. Calculate the total proceeds from selling the cryptocurrency. This includes the selling price minus any transaction fees incurred during the sale.
  3. The realised gains can be found by subtracting your initial investment from the total sales proceeds. This figure represents the profit you’ve made from completed transactions.


Calculating Unrealised Gains

Determine the current market value of your remaining cryptocurrency holdings. This is the current price per unit multiplied by the number of units you still possess. Revisit the initial investment amount, including transaction fees, for the remaining holdings.

Subtract the initial investment for the remaining holdings from the current market value. This figure represents the potential profit from your existing cryptocurrency holdings.


Tax Implications

Understanding the tax implications of your crypto profit can ultimately help to prevent any legal issues. In the UK, cryptocurrencies are subject to capital gains tax (CGT).

To determine crypto profit before tax, use a reliable free crypto profit calculator or a crypto investment calculator, inputting transaction details to accurately calculate profit and understand the potential impact of crypto taxes on your financial returns.

The CGT is applied to the profit made from selling or disposing of crypto assets. The rates can vary based on your overall income and the duration for which you held the assets.

Calculating profit before tax is a process that requires attention to detail and an understanding of the various factors influencing your returns.

The tax-free allowance in the UK for Capital Gains is currently £3,000, as of the 2024/25 tax year. You can earn up to £3,000 in cryptocurrency profits before you need to pay CGT.

Remember to consult with a tax professional to ensure compliance with current regulations and optimise your tax strategy for maximum financial success in the exciting world of cryptocurrency.


Crypto Tax Worries? We Have You Covered

Investing in cryptocurrency presents unique challenges, especially when it comes to managing tax obligations. As a family-owned accounting firm, at Haggards Crowther, we specialise in providing comprehensive accounting solutions tailored to your needs. Our team comprises seasoned professionals well-versed in the intricacies of cryptocurrency investments and tax implications.

While crypto investments can be rewarding, they also come with their tax complexities that should not be overlooked. Our role is to assist you in ensuring your tax affairs are in order, and helping you understand the potential tax implications of your cryptocurrency investments.

Should you require assistance in managing your cryptocurrency investments or have any enquiries about the scope of our services, we invite you to reach out. At Haggards Crowther, we are committed to supporting your investment journey, ensuring it is as smooth and compliant as possible.