What you need to know about Cryptocurrency and Taxation
Contributed by Skycoin
29 March, 2018
Many of the individuals who have bought into cryptocurrencies have done so with the aim of making money. For a good many they hope it is easy money and lots of it.
There are others who look at these forms of digital cash to hide away some of their wealth as a way to avoid to pay taxes.
In both cases and other not mentioned at some point, if you are earning money from trading or holding cryptocurrencies long term. Taxes will be due.
Many countries have varying rules as to how they see cryptocurrencies from a taxable point of view and the moment in time when taxes have to be calculated.
There is no question of it, trying to figure out taxes on cryptocurrencies can be extremely difficult, and some people choose to ignore their obligations. This being said there are more who are unaware of the regulations or are confused by what they have heard.
One important point to note is. Even though cryptocurrencies are new, anything that earns money will soon grab the attention of the governments.
With the colossal rise in the value of Bitcoin, the IRS is already knocking on the door of Coinbase (largest exchange in the world) and forcing them to divulge details of their wealthiest users.
Taxes by Country
As mentioned many countries have varying ways of determining and calculating the taxes due on money earned from cryptocurrencies. Here is a rundown of the leading (English speaking countries) taxation regulations.
As with a lot of things the USA can have state taxes as well as country-wide taxes. This can make it even more confusing. We will look at the country-wide taxes rather than delving into state taxes.
Short-term capital gains tax – this is payable if any cryptocurrency is held for one year or less.
Long-term capital gains tax – this is payable if any cryptocurrency is held for one year or longer.
If you have holdings mainly foreign assets of over $10,000 these need to be declared and could include any cryptocurrency that is stored on an exchange or in a wallet which is not on United States soil.
Goods or services which are paid for by Bitcoin are subject to VAT (value added tax). This is calculated at the time of the items purchased.
Capital gains tax is used for individuals. Any losses or gains which are incurred by said cryptocurrencies fall under this tax type.
Any currency exchange carries on regularly regarding corporate tax.
Businesses which are not incorporated income tax is also carried out regularly for any profits or losses
The United Kingdom also goes into detail regarding the mining of Bitcoin, most of which is VAT exempt.
Much of what the government quote in Australia comes into effect if you have cryptocurrencies of over $10,000 in value. If you are an individual, then capital gains tax would apply when you dispose of the said digital currency.
Canada takes the view that cryptocurrencies are not legal tender, although purchases or any gains or losses which occur from trading must be reported when filing tax returns as they are regarded as part of an individual income.
Details to Keep
When an individual has decided to take up investing in cryptocurrency, they should investigate the implications of taxes as a government would backtrack and check past transactions before imposing a tax payment.
At the very least you should retain as much information as is possible when investing which could help reduce any tax liabilities at any said time. Things to keep are:
The date of any transactions
Who the transaction was made to – this can apply even if it is only a cryptocurrency address
What the transaction was for – purchases of goods or services or further investment
The amount in local currency that was gained or lost through any transactions.
The Arizona Law
As much as cryptocurrencies are frowned upon by governments and how they can tax them or indeed monitor them. The state of Arizona has taken a step further and become one of the most Bitcoin-friendly states.
They have passed a bill where individuals who reside in this state can take advantage of the "Arizona Law" and can pay their income taxes using cryptocurrencies or any Bitcoin.
This is the start of where cryptocurrencies gain a foothold in recognition and gone on to help the adoption of any such currency. If this bill filters into any other states, the cryptocurrencies will finally be recognized as a real entity, and from that, there will be no going back.
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