How to Declare Cryptocurrency in Your Portuguese IRS Tax Return (Without the Stress!)

 

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The year 2024 was a golden one for Bitcoin and other cryptocurrencies. With prices soaring, many investors took the opportunity to sell and make a profit. But now comes the next challenge: declaring those earnings correctly in your IRS tax return. If you sold crypto assets last year and are unsure how to proceed, this guide will help you navigate the process smoothly and avoid any penalties.

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Do You Need to Declare Your Crypto Transactions?

Not all cryptocurrency transactions require tax declarations. Understanding what is taxable and when is crucial. The key rule to remember is the 365-day holding period.

• If you sold your crypto for fiat currency (euros, dollars, etc.) within 365 days of buying it, you must report the transaction and pay a 28% capital gains tax. However, you can choose to include these gains in your overall income through englobamento (aggregation), which might result in a lower tax rate if your total income is low.

• If your total annual income falls into the highest tax bracket, englobamento is mandatory, and you could face a tax rate of 48% on your crypto gains.

• If you held your cryptocurrency for more than a year before selling, you are exempt from paying tax but still need to declare the earnings.

Additionally, if you exchanged crypto for another crypto asset, this is not considered a taxable event under Portuguese law.

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Where to Report Crypto Gains in Your IRS Declaration

When it’s time to fill out your IRS declaration, you must report crypto gains in Annex G (Quadro 18-A). If you choose englobamento, you must mark Quadro 15, Campo 01.

The following details must be included:

• Your tax identification number (NIF)

• The date of purchase and purchase price of the crypto asset

• The date of sale and sale price

• The NIF of the financial intermediary (exchange) or the country where the transaction took place

• If the buyer was foreign, you must fill in the "País da Contraparte" (Country of the Counterparty) column

• Any transaction fees paid (listed under "Despesas e Encargos")

Example: Suppose you bought 1 Bitcoin in 2021 for $50,000 and sold it in November 2024 for $80,000. The profit (capital gain) is $30,000, which needs to be reported if the sale was within 365 days of purchase.

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Declaring Crypto Assets Held for Over a Year

If you held your cryptocurrency for more than one year before selling, the latest Portuguese tax regulations state that you must declare the earnings, but no tax will be applied. These declarations go into Annex G1, which is dedicated to tax-exempt capital gains. The same details as in Annex G should be provided.

Additionally, crypto-to-crypto exchanges are exempt from taxation and do not need to be reported.

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Final Thoughts: Stay Compliant and Avoid Issues

Tax laws surrounding cryptocurrency in Portugal are relatively favorable compared to other countries, but they require careful reporting to avoid fines or legal issues. If you're unsure about any part of your IRS declaration, consulting a tax professional with experience in cryptocurrency can provide valuable guidance.

By following these steps and ensuring accurate reporting, you can confidently navigate tax season without stress—allowing you to focus on your next crypto investment!

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