Source: newsbtc.com

5 Things You Need to Know About Bitcoin and Taxes

Many aspects regarding digital assets are still in a gray area in terms of the law, and this gets even more emphasized when we talk about cryptocurrencies. Namely, when it all started, there weren’t many countries in the world that had any kind of law to regulate this new currency. Of course, when governments cannot control something, their logical next step is to make those things illegal. Now, much has changed ’till 2008, and almost every country in the world today has some sort of regulatory system designed to tax any sort of digital asset, especially cryptos. Yes, it’s all about taxes, the thing that, as Benjamin Franklin said, is one of the only two guaranteed things in life.

Source: cointext.com

1. Every country has its own tax rate

As you have probably guessed, not every country is open to these new trends, even though it’s pretty obvious that digital currencies are a thing of the future and something that will entirely change and shape the way we perceive money. On the other hand, certain governments have recognized this as a great opportunity to stimulate further investments in the tech field, encouraging individuals to invest and participate in this global phenomenon. That is why today, depending on where you exactly live, the law and whole regulatory system on digital assets can be much different, and in some countries like Japan, there is a 55% tax on cryptos, and if you live in Portugal, it is a true heaven for crypto owners as there is no taxation over cryptos. Okay, Japan has the highest taxes in the world, but that’s mostly due to blockchain and digital money being used almost everywhere, and they simply needed to do something to regulate this high flow of currency. By some predictions, in a year or so, we could see that the taxes in Japan will be reduced by half, creating, once again, a positive crypto atmosphere.

2. Even miners have to pay taxes

Yes, regardless of how we got into the possession of Bitcoin, we need to pay taxes. It literally means that if we have BTC, we have to pay for the ownership and transactions. As for how much, it is taxed as an ordinary income, but just because it states ordinary doesn’t mean that we pay less, on the contrary. Furthermore, by mining, we are self-employed, which means that we also need to owe and pay for medicare and social security taxes. Now, it’s not all bad, as there are some things we get to write off, such as electricity or the cost of the mining rigs.

Source: forbes.com

3. Bitcoin is a property and not a currency in the US

Well, this is where things get interesting, as, in the USA, the IRS considers cryptos as a property and not as a currency. It means that if you get BTC as some sort of compensation, it is considered as a taxable income, but things don’t end there as there are two main things to keep in mind. The first one is regarding short-term gain (under one year), and this type of income is taxed as an ordinary income, while the second one, for long-term gain, is considered and taxed as a capital income. By doing so, the US government has regulated the crypto market on a federal level what you as an individual owner of Bitcoin can expect and what your obligations are. Furthermore, it also means that you need to keep track and calculate every gain or loss when dealing with BTC. Of course, every state has introduced its own laws, which led to much confusion, but in general, for short-term gain, taxes can range from 10% to 37%, and for long-term gains from 0% up to 20%.

4. Trading records are not shared with the IRS

Okay, let’s start by stating that this is the gray area we mentioned above, as, unlike stock brokerages who report every sale of assets to the IRS, exchange platforms don’t do that. It basically means that the government has no real insight into whether you actively participate in the crypto market and what your gains/losses are. It also means that it is up to every single person to report their activity and their sales flow to the IRS if they want to do so. The government is trying to change this, but since the whole point of digital assets is to eliminate the third party of any kind, this is not likely to change anytime soon. Of course, it also depends on the platform you are using and in which country they are registered, as some of them have transactions or/and earnings limits, which, if crossed, are reported back to IRS. So, before deciding to trade, make sure you do your homework.

Source: time.com

5. No taxes for donations

It’s good to know that donating money to some charity is not taxable, even though a person has actually disposed of it. Yes, this is one situation where there are no taxes for BTC transactions, regardless of the possible value changes. Besides donations, if you receive a certain amount of BTC as a gift, you will not have to pay taxes, and, in the future, if you decide to dispose of it, you will have to pay the same amount as the person who has sent it to you regardless of the BTC value changes.

Final thoughts

This list of five must-know facts about Bitcoin and taxes is something every crypto owner and trader should know about and because two main reasons. The first one is that it will surely save you a hefty sum if you have read between the lines, and the second one is that you will avoid getting in any legal trouble. Remember, this is still a relatively new market, and as such, certain changes and new rules and regulations will surely happen in the near future, so a good crypto investor is a well-informed crypto investor. Of course, that’s only one piece of the puzzle, and in order to make the most out of your investment, you also need to find a reliable software or app, and to get all details on that, read more.

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