Author: Jiang Heng
“I initially invested 100,000 yuan, and after years of trouble, my account only has 80,000 left. Why am I still receiving reminders for a tax self-examination? Do I still have to pay taxes on losses?”
This is the biggest confusion for many experienced players who have gone through bull and bear markets.
In the bull market years, assets once rolled to hundreds of thousands, exchanging countless tokens, staking, encountering pitfalls, and even experiencing liquidation, but in the end, when tallying the accounts, they found their losses totaled 20,000 yuan. When receiving self-examination reminders from the tax department, most people's first reaction is: using the ending balance minus the initial investment, with a net loss of 20,000 yuan, how can there be taxable income?
Unfortunately, the “final gain or loss of total personal assets” and “the legally taxable income realized annually” are two completely different concepts in tax law.
To clarify whether taxes need to be paid and how much, you must reorganize every transaction, currency exchange, loss, and status over the years. Of course, the reverse is also true—tax authorities will not simply add together all your incoming cash flows and force you to pay taxes.
In recent years, tax authorities have continuously strengthened their focus on the declaration of overseas income. For holders of crypto assets involving overseas trading platforms and cross-border fund transfers, it is also necessary to reorganize historical transaction records to verify whether there are any income that needs to be declared according to law.
1. If I obviously lost money, why do I still have to count the money I made before?
Let’s look at a simple example (the following are hypothetical scenarios, solely for illustrating the calculation logic; currently, there are no unified tax calculation rules for cryptocurrency transactions in our country):
● 2019: You took 100,000 yuan to buy crypto asset A.
● 2021: The bull market came, asset A rose to 300,000 yuan, and you chose to sell it, making a profit of 200,000 yuan. You then reinvested all this 300,000 yuan into asset B.
● 2022: The bear market came, asset B fell all the way, and you finally sold it for only 80,000 yuan, incurring a loss of 220,000 yuan.
After several years of trouble, the initial investment of 100,000 yuan has only 80,000 left, making for a total loss of 20,000 yuan.
At this point, you might think: since I ultimately didn't make any money, why should I even consider paying taxes?
The issue lies in whether you ultimately made a profit and whether a certain past transaction generated taxable income—these are not necessarily the same thing.
Let’s revisit the example above. In 2021, you sold asset A for 300,000 yuan, generating 200,000 yuan in profits. Assuming, after specific tax analysis, that this transaction is processed as “income from property transfer,” and you can prove the purchase cost of 100,000 yuan, without considering other deduction factors for now, at a tax rate of 20%, the indicative tax amount would be:
(300,000 yuan - 100,000 yuan) × 20% = 40,000 yuan.
But in 2022, you incurred a loss of 220,000 yuan when investing in asset B. Although this loss genuinely occurred, it does not mean it can be directly used to offset the taxes owed from the profits potentially generated in 2021.
The reason is not complicated: tax assessments require analyzing each specific transaction and the applicable rules individually; one cannot merely look at whether they ultimately earned or lost money over the years. For transactions handled as income from property transfers, transfer income, original value, and reasonable expenses typically need to be calculated separately. The gains realized the previous year cannot simply be wiped out just because a loss occurred the following year.
Of course, the 40,000 yuan mentioned above is merely a hypothetical calculation for illustrative purposes and does not mean that all cryptocurrency transactions will uniformly pay 20% personal income tax. Actual tax obligations, applicable rules, and whether related losses can be deducted need to be assessed based on specific transaction circumstances and current legal provisions.
Therefore, if you have experienced multiple rounds of bull and bear markets and wish to understand if historical transactions present any tax issues, the first step is not to subtract the initial capital from the current account balance, but rather to clarify each past purchase, sale, currency exchange, and loss, then determine which transactions may involve tax obligations.
Only by clarifying the accounts can you further assess how taxes should be calculated and whether any payment is due.
2. How to organize complex transaction records? The first table only restores “asset facts”
Faced with high-frequency, cross-chain, multi-platform small transactions, the first step is not to directly calculate taxes but to create a pure asset change table.
List all your trading platform accounts, hardware wallets, on-chain addresses. Itemize by cryptocurrency:
● How many coins were there at the beginning
● Additions: deposits, wages, purchases, airdrops, staking earnings
● Reductions: sales, withdrawals, transfers, protocol costs
● Verify the ending quantity
Key points for professional operation:
Document price fluctuations separately: Price changes are unrealized gains or losses; as long as nothing has been sold or exchanged, the quantity of coins remains unchanged, thus not a taxable event.
Do not double count internal transfers: Withdrawing from Binance to a wallet does not constitute a transaction that can be counted again. However, if it involves cross-chain bridges or wrapped tokens (e.g., exchanging ETH for wETH), you need to be cautious about whether asset rights have fundamentally changed.
What if the accounts don't match? If there’s a discrepancy in the accounts, do not casually write a line for “other income” to force a balance! The discrepancy might be due to forgotten fees, rebase mechanisms, or internal exchanges by the platform. If you hastily fill in the unclear discrepancy as “income,” you are effectively solidifying a potential tax basis for yourself.
3. Using the “Three-Layer Evidence Method” to reconstruct the crypto asset evidence chain
Given the high complexity of crypto asset trading (including missing historical data from CEXs, intensive interactions on DEXs, cross-chain bridges, and DeFi combinations), simple tables cannot meet verification requirements. In our practical experience of organizing complex transactions, we rely on the “Three-Layer Evidence Restoration Method” to establish compliant documentation that can withstand scrutiny for token holders:
Layer One: What happened
First, record verifiable facts:
● How much money was paid to the platform on what date;
● What assets were bought or sold, and what were the quantities and prices;
● Which account or address the asset was transferred to or from;
● What were the records of platform transactions, deposits, withdrawals, and costs.
Potential materials include bank statements, platform-exported orders, exchange account records, on-chain transaction hashes, and contract interaction records.
Different materials prove different contents: Bank statements can prove payment of funds, but may not separately prove which batch of assets were purchased; on-chain hashes can prove that corresponding transactions occurred, but may not solely validate how much was paid in RMB at the time.
Layer Two: Why was this asset received and why was it sent out?
Even if a transaction is recorded, the economic relationship may be entirely different.
For example, if a developer receives USDT for work, it is necessary to understand their relationship with the payer; transfers between personal accounts need to verify if the assets consistently belonged to the same person; payments received from clients must distinguish between personal income and funds collected on behalf of a company.
Freezing, theft, and selling at a loss should also be recorded separately. If the platform temporarily stops withdrawals, it does not necessarily prove that all assets in the account cannot be recovered; one must continue to assess this in conjunction with platform announcements, claims for debts, liquidation, and actual distribution situations.
Layer Three: How to address tax issues?
Once the facts and transaction relationships are relatively clear, then take a closer look at each item:
● What income might belong to which project;
● When did the acquisition or disposal occur;
● What are the bases for original value and reasonable expenses;
● Whether it has already been declared and if there is any repeat counting;
● What other facts and evidence have not been clarified.
Each amount needing explanation should ideally correspond to contracts, orders, platform records, bank statements, or on-chain records. If any part cannot be verified, list the questions that need verification, do not guess to fill in a specific number.
For instance, if someone receives token development compensation and sells it a year later, it may be necessary to study both the acquisition of the compensation and its subsequent disposal separately, paying attention to the value connection between the two, avoiding only looking at the final outflow, and avoiding repeat calculations for the same economic sum without distinction.
4. Historical costs and identity determination: Cannot apply a unified assumption blindly
When organizing historical cryptocurrency trading records from the past years, besides clarifying how much was earned and lost each year, there are two issues that cannot be overlooked: what was your tax identity at that time? Can the cost of the purchased assets still be proven?
1. Tax identity can change, and tax rules may differ
If you lived or worked abroad for a long time during these years, or traveled between different countries and regions, you need to recheck your tax residency status for each year.
The residency situation in different years may affect the scope of income tax obligations. Whether one is considered a tax resident of China needs to be evaluated in conjunction with factors such as having a residence within China, the number of days lived that year, rather than simply looking at what passport one holds or whether one has foreign visas.
Furthermore, tax residency and source of income are two separate issues. Even if using overseas exchanges, it cannot be directly inferred that the related income is overseas income.
As such, one cannot use the identity status from one year to apply uniformly across all past years. Those involving cross-border residence or income also need to be assessed based on specific circumstances and applicable tax agreements.
2. How to prove the cost of coins bought years ago?
Another common problem is that the coins are either still held or had already been sold, but the purchase records from that year are no longer available.
For example, you may find a bank statement from a few years ago showing a transfer to an exchange, but that doesn’t necessarily prove how much specific assets were bought; on-chain transaction records can prove that assets moved from one wallet to another, but they typically cannot independently demonstrate how much was spent for the purchase at that time.
At this point, it is necessary to combine bank statements, exchange orders, deposit and withdrawal records, on-chain transaction records, etc., to reconstruct the original purchase price, transaction quantities, and asset flow as accurately as possible.
If the same type of cryptocurrency was purchased in multiple transactions and then sold in batches, the cost calculations will become even more complex.
Some foreign tax software defaults to using FIFO (First In, First Out) or average cost methods to calculate profits, but these methods cannot be directly equated to the unified calculation rules recognized by Chinese tax authorities. For specific tax audits, one needs to explain how costs are determined and the basis for the calculation methods in accordance with transactional specifics, obtainable evidence, and applicable regulations.
Ultimately, the key to historical cost verification is not to casually select an algorithm to balance the accounts but to ensure that every purchase, sale, and cost is substantiated.
5. About retrospective collection periods: Does it mean you don’t need to care if it’s been more than 3 years?
Many people have heard that “the tax collection period is generally 3 years, with special circumstances extending to 5 years,” and assume that accounts prior to 2020 do not need to be reviewed. This understanding is very dangerous!
What situations are subject to the 3-year/5-year limit? If you were not deliberately evading tax and simply did not understand the rules and didn’t declare, the general retrospective collection period is indeed 3 years (with special circumstances extending to 5 years). However, this needs to be determined by specific documentation and facts, and cannot be simply applied with the statement “I didn’t declare back then.”
Tax evasion has no time limit: If it is determined that there was intentional concealment or provision of false materials, tax authorities can pursue collection without time limitation.
Older records are still “life-saving evidence” now: Even if the tax for 2019 has exceeded the retrospective collection period, you still need your purchase records from 2019! Because if you want to prove your cost is 100,000 yuan in 2021, you must provide the purchase receipts from 2019. Wiping away old accounts often harms only yourself.
6. Voluntarily correcting does not equate to confessing, nor does it guarantee “exemption from penalties”
When hearing that some have voluntarily reported and paid back taxes, many people’s first reaction is “Will I go to jail?” or “Once I pay, is everything clear?”
Paying back taxes merely corrects tax records: Voluntarily correcting tax errors is an administrative compliance action; it does not in itself imply criminal behavior, nor can it be equated directly to “confession” under criminal law.
“First time tax correction exempts from criminal liability” has conditions: According to judicial interpretations, if tax evasion occurs but is corrected in accordance with the tax authority's notice before the public security organ files a case, with full payment of tax, late fees, and penalties within the stipulated time, criminal liability may indeed not be pursued (provided there have been no criminal penalties for tax evasion or more than two administrative penalties within five years).
Late fees and penalties are two separate matters: Tax is the principal amount, late fees are charged daily (with annualized calculations not lower than a specific rate), and penalties are punitive. It is essential to clearly separate these in your records and avoid lumping all together under “tax rate.”
(Note: The State Taxation Administration has issued unified “Discretionary Guidelines for Administrative Tax Penalties,” which will officially come into effect on November 1, 2026. Matters handled prior to this still need to be assessed based on specific documentation and principles of applicability of old and new regulations.)
7. Correction timelines and accountability closure
When arranging corrective measures, it’s advisable to separately document the statutory declaration timelines and actual correction paths:
For example, if your overseas income involves the year 2025, the statutory declaration deadline is usually June 30, 2026. Now that this window has passed, if you discover a prior omission, you cannot delay until 2027 but should promptly organize materials and verify corrective paths.
8. Conclusion
Cryptocurrency transactions often span multiple platforms, wallets, and years, and after experiencing several rounds of bull and bear markets, historical accounts inevitably become complex. However, complexity does not imply inability to clarify. By organizing transaction records, restoring asset flows, verifying historical costs, and analyzing by each year in relation to actual situations and legal regulations, it is still possible to gradually clarify past transactions and potential tax risks.
The goal of organizing historical transactions is not simply to calculate a tax amount due for payment but to restore the true transaction facts, clarify the nature of each income, cost, and loss. Those that are required to be declared and processed should be handled in a timely and compliant manner; those that should not be double counted or incorrectly identified must also have sufficient evidence and basis explained. Only by clarifying the accounts and articulating the facts well can you more safely address historical tax issues.
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