Crypto Taxes and Bank Transfers: How to Stay Compliant and Organized

Cryptocurrencies are growing in popularity and acceptance among everyday users and financial institutions.  It’s become common for a person to have crypto as a part of their portfolio and to buy, sell, and trade with crypto on a day-to-day basis.  In return, this has led to more regulation and greater vigilance on the part of tax authorities.

Crypto users should especially be aware of the intersection between crypto transactions and traditional banking.  Bank transfers to crypto exchanges, wallets, or crypto services create a paper trail that needs to match crypto records.  In this article, we’ll go over how to stay compliant with the recent tax regulations and organize your transfers and records.  

Understanding Crypto Taxes

Before we get into bank transfers, it’s crucial to understand how cryptos are taxed.  Most countries have modeled their tax practices regarding crypto on those of securities.  That means that governments see crypto as an asset that is more similar to a bond than fiat money.

Taxable Events

There are certain events that trigger the tax authorities to reach and that crypto users should be aware of.  Users should also have a record of these events as they are part of their tax obligations.  Different countries have different rules as to which action is a tax event, and the regulations in this regard are getting more uniform.  Crypto tax events include:

• Selling crypto for fiat money (converting crypto to fiat).
• Trading one crypto for another.
• Using crypto to pay for goods or services online (this is treated as disposing of a crypto asset).
• Earning crypto.  This can include payments made from winning at crypto slots (the best crypto slots sites pay out winnings immediately).  It can also mean payments for mining, staking, or earning and income paid in crypto.

Each of these events presents a capital gain (or a loss) and therefore needs to be reported.

Capital Gains vs. Income Tax

 Capital gains tax applies when an investor sells crypto they’ve held as an investment.  The difference between the amount they’ve bought it for and the amount they sold it for is the “gains,” and the taxes are paid on that amount.  The rates depend on how long the investor has held the asset.

Short-term capital gains are taxed at a higher rate since the tax authorities have a policy of supporting and promoting keeping assets for a long time and making steady gains over a long time.  Most tax authorities consider assets held for less than a year to be short-term.

Long-term capital gains are charged if an investor holds a crypto asset for more than a year and sells it for profit.  The tax rate is lower for these.

Profits made from assets held for less than a year are taxed as any other income, and the tax ranges from 10 to 37 percent depending on the tax bracket the crypto user is in.  Other income also contributes to this metric.

Profits and long-term capital gains are taxed at preferential rates ranging from zero to 20 percent.  If the profits are lower than $47,025 annually, there are no taxes to be paid.

Income taxes also apply when the crypto is paid for labor or as a reward.  The value of crypto at the time when it was paid is counted as ordinary income.

International Tax Considerations

One of the greatest benefits of using crypto is that it knows no borders, and it can be used by almost anyone anywhere in the world.  No central bank issues cryptos, and therefore, no central bank controls them.  However, this also presents a problem for the tax authorities.  Taxes are paid based on the rules of the country in which the crypto owner is residing, regardless of where the crypto activity was made.

Knowing the rules and regulations in your own country is therefore essential.  For example:

• In the US, the IRS requires crypto owners to report crypto activities (meaning transfers) using Form 8949 and Schedule D.
• In the UK, the government treats crypto as property and not as currency or financial asset, and it’s taxed in the same way it would tax buying or selling a home.
• The EU has the most comprehensive crypto regulation, as it created a comprehensive plan for crypto regulations, which took effort from all member nations.  The Directive on Administrative Cooperation in Direct Taxation, which regulates taxes in the EU, applies to crypto as well.

The Role of Bank Transfers in Crypto Activities

 Crypto activity that takes place on-chain or from one digital wallet to another isn’t subject to any taxation.  However, once the traditional financial institutions such as banks are involved – so are the tax authorities.  Users also have obligations to keep track of transactions, including bank transactions that use fiat money and crypto assets and platforms.

Fiat On-Ramps and Off-Ramps

 On-ramps are bank services in which the users transfer fiat money onto a platform on which they buy crypto.  Off-ramps are services that result in a fiat money bank to the bank account (for instance, when crypto is sold).  Each of these transfers may have tax implications, and each needs to be recorded.  When dealing with tax authorities, the key is for these records to match those created by crypto platforms and apps.

How Banks View Crypto Transactions

 Just a few years ago, banks didn’t deal with crypto at all, but there has been a big change in the way traditional financial institutions view crypto.  Partly, this is because the general public has accepted crypto as a common asset, and partly, the change comes from the new US administration, which is very crypto-friendly.

Many banks have become open to crypto and even crypto-friendly, as there’s a market for these services.  The key to avoiding tax and compliance issues is to be transparent with your bank about crypto use.  It also helps to choose a financial institution that’s forward-looking and has tools put in place for working with crypto.

Common sense used to prevent money laundering also works with crypto transfers.  Red flags include large deposits with no explanation, transfers to and from crypto exchanges that are known to have a bad reputation and unusual activity patterns.

Staying Compliant

Compliance with crypto tax regulations doesn’t have to be complicated as long as the investors are aware of the regulations and their obligations within the system.  It’s also useful to follow through with those obligations for every transaction rather than to let them pile up.

Keeping Detailed Records

 Keeping detailed records of crypto transactions is the key to being compliant.  Here are the records that a crypto holder must keep for every crypto transaction.

• Date and time for each transaction
• What cryptos are bought and sold
• Amounts that are being transferred (in crypto and the corresponding value in fiat)
• Which exchange platform you’ve used
• The transaction fees paid (since those are deducted from the basis for the tax)
• Counterparty info, if available
• Bank transfer details – this includes matching amounts and dates

Using Crypto Tax Software

 For users who transfer small amounts and only have a few transfers to keep up with, spreadsheets can be the only tool they need.  Those who work with substantial amounts of crypto should invest in crypto tax software.  There are many options available, including:

Koinly – It connects with crypto exchanges and wallets directly and is available in many countries.
CoinTracker – It integrates with TurboTax, the most common tax software in the US, but is therefore only an option for US users.

ZenLedger – It’s an IRS-compliant tool, features an audit option, and works for NFTs and decentralized finance in general.

Accounting – A simple tool for beginners.

All of the tools on our list are able to identify taxable events, calculate gains and losses, and generate reports for the users to file with the tax authorities.

Reporting Bank Transfers Accurately

Bank transfers are often the key to managing crypto taxes since those are the institutions with which tax authorities are familiar.  In order to stay compliant and avoid issues, crypto investors should:

• Account for fiat deposits and withdrawals and match them with crypto trades.
   
• Explain large transfers, ideally by transaction references.

• Show how cryptos were bought and sold.

The most common way to do so is to keep a parallel record of crypto transactions and then match them with those done in fiat money.

Organizing for Long-Term Success

 Crypto investing should be treated as a business since it’s made to generate profit, and if it’s done right, it does.  That means that investors should treat it as such, even when the amounts involved are small – and implement structures and tools to stay compliant.

Creating a Crypto-Specific Financial Plan

 The first step is to keep separate accounts to be used only for the purpose of dealing with crypto.  A dedicated bank account made for this purpose only makes it easier to keep track of the records involved.  This is especially true if a user makes a lot of transfers.

Crypto investors should institute a review dealing with their crypto transfers only.  In most cases, this is done quarterly, but it can also be done monthly if there are many such transfers.  The reviews should be used to check the double accounting system.

The system for creating backups should also be put in place.  This should include the transaction history for every transfer, which should be done on a cloud or on a separate offline device.

Taking the time to set up and occasionally revise this system helps minimize the risks when dealing with tax authorities and saves time in the long run.

Working With Professionals

As crypto grows more complex, working with an accountant or tax advisor who understands digital assets is a smart move.  There are a few benefits to this. 

Once crypto activities become too complex for an investor to handle on their own, even with the use of crypto tax software – it pays off to hire a professional.  This is an additional expense, but in the long run, it will avoid much costlier mistakes.

A tax professional can also devise a tax strategy that’s personalized and helps with the specifics an investor is dealing with.  There are already niche services that advertise as crypto specialists, and it’s a growing market.

Common Mistakes to Avoid

 There are a few common mistakes when dealing with crypto taxes that are sometimes made even by experienced traders.  The best way to avoid them is to be aware of them and to set up systems that will prevent them.  Common mistakes include:

• Ignoring transfers of small amounts
• Mixing different crypto wallets
• Assuming exchanges will provide the tax reports, even though many don’t
• Forgetting to comply with tax regulations when moving abroad

Conclusion

Now, when cryptos are widely used, those who invest in crypto should be prepared to pay taxes on the income made from these investments.  Crypto investors are obligated to keep tax records and to report their income.  Tax authorities treat crypto as assets and not currency, and the tax rates depend on how long an investor owns the asset.

It’s also essential to keep track of your bank records when banks are used to buy crypto with fiat money or to transfer your crypto profits.  It’s best to create a system with this purpose in mind and stick to it.

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Reviewed and edited by Albert Fang.

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Article Title: Crypto Taxes and Bank Transfers: How to Stay Compliant and Organized

https://fangwallet.com/2025/05/08/crypto-taxes-and-bank-transfers-how-to-stay-compliant-and-organized/

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