How are crypto airdrops taxed? This question is among the most frequent that crypto wallet holders are worrying about. The marketing strategy of crypto airdrops is becoming more and more popular in the crypto world and individuals that participate generate a decent income.
The concept of crypto airdrops is that crypto wallet holders receive for free an amount of crypto coins or tokens from blockchain companies in an exchange of nothing or just a simple promotional action. This action might be to repost a publication or follow the crypto company in social media. Crypto companies from their side apply it in order to increase their project awareness and visibility.
The tokens received by individuals that joined the airdrop have some value and for that reason they are subject to taxation.
Of course the tax regulations differ from one country to another. In this article we start with the basics in cryptocurrency airdrop taxes which are common in every country and then we will talk about what regulation will apply in different countries.
So, how are crypto airdrops taxed?
When an individual receives tokens from an airdrop he has to declare it in the tax report. The amount of money that is going to be taxed is the value in fiat money that the received coins have at the moment they passed into an individual’s possession.
The value of the airdrop token equals the Fair Market Value (FMV) for this token. FMV is the price of a crypto asset that is sold for at the open market when specific conditions are met.
Furthermore, there is also the possibility that the airdrop value is calculated in another crypto coin like Ether. In this case all you need to do is to find the value of Ether in fiat money at the specific moment that you received the airdrop and then report this amount as your income.
For example, if you participate in a new platform and have received 1000 units of A token and its Fair Market Value is at 0,5$, the taxable income you need to report is 500$.
How to report crypto airdrop on taxes
Cryptocurrency airdrop taxes are different depending on the country that an individual is living in. Below you can find how taxes are calculated in different countries.
Crypto airdrop tax in the USA
IRS has fully regulated the crypto airdrops taxes making things pretty clear.
- Airdrop reward is categorized as any other kind of income. The value of each token is calculated by Fair Market Value. The crypto rewards have to be declared in the form “Other income”.
- US citizens must pay cryptocurrency airdrop taxes even when they are selling those free tokens. The earned amount is considered subject to Capital Gains Tax. This amount is calculated if you subtract the initial value of your airdrop from the price you finally sold them. Of course, since taxation in the US depends on many factors, it would be wise to consult a professional for more specific information.
Crypto airdrop tax in UK
HMRC announced that airdrops are taxed both as Capital Gains Tax or income. So, check out below to see how are crypto airdrops taxed:
Airdrops as income (H4)
Crypto assets are taxed only if the individual that received them has done an action in return.
This action could be to follow the crypto company in a social media platform or repost certain posts that the company published online.
On the other hand, if an individual gets tokens without having done anything in return, then he is not obligated to pay taxes.
As a result, UK citizens are recommended to go after Standard Airdrops which are airdrops that are given away without any obligation. Learn more about Standard Airdrops and other types of crypto airdrops here.
Airdrops as Capital Gains Tax
In case you sell crypto assets that you received from an airdrop and you made a profit out of it, you will pay capital gain tax only on the profit you made.
Also notice that according to the country you are living in, the exact percentage you are going to pay in taxes differs. Also, the actual percentage of the tax depends entirely on your income and some other factors. In any case, you might pay for cryptocurrency airdrop taxes from 0 to 45%.
Crypto airdrop tax in Australia
The Australian Tax Office (ATO) has provided a fully regulated taxation in crypto airdrops for Australians. The taxation system logic is very similar with USA legislation. That means that airdrops are taxed as ordinary income.
In case that your cryptos increased in value and you decided to sell them, you will pay taxes as capital gains.
Find a complete guide at crypto airdrop taxes in Australia here.
Final thoughts to how are crypto airdrops taxed
Crypto airdrops have become very popular among crypto wallet holders because they have the chance to gain free tokens which are often very valuable. For that reason, crypto airdrop receivers need to be careful on whether they have to pay taxes or not. Taxation depends widely on the country that individuals are living in. Although we can tell that in most countries airdrop receivers must pay taxes and declare it as an ordinary income. If you have more questions on how are crypto airdrops taxed or how to report crypto airdrop on taxes you are recommended to consult a tax professional.
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