11 June 2020
What You Need To Know About Bitcoin Taxes
The debate and discussion around cryptocurrency taxes have been going on for long as digital currencies successfully breached mainstream financial markets.
The tax agencies of several major economies have started intervening and monitoring the profits derived from Bitcoin trading and bringing them under the country’s official tax structure.
These taxation agencies have also made it mandatory for individuals to do Bitcoin tax reporting every financial year.
Some of the top Bitcoin trading countries like Japan, the U.S., South Korea, Australia, and Canada have different laws for Bitcoin taxes.
On the other hand, there are some countries with crypto-friendly taxation laws that do not tax cryptocurrencies at all.
Bitcoin Taxes Implemented By The IRS
The top taxation body of the U.S. – Internal Revenue Services (IRS) – looks after all the tax-related matters with Bitcoin and other cryptocurrencies.
Due to its volatile price fluctuations, the IRS doesn’t treat Bitcoin as a currency or securities. Instead, it treats Bitcoin as a property or capital asset. This is because, just like other capital assets, Bitcoin gives capital gains and losses when disposed of.
Note that as per the IRS rules, if a capital asset is sold at profits within a year of purchase, it can be taxable as short-term capital gains. However, if the position is held for more than a year and sold later, it shall be treated as long-term capital gains.
The IRS has made it mandatory for all to report Bitcoin transactions without any minimum limit of the size of the transaction. Thus, the IRS makes it necessary for all taxpayers to keep the receipts and records of buying, selling, and investing in Bitcoins to pay for goods and services.
Moreover, since Bitcoin is treated as an asset, any simple transaction like paying for your goods and services will come under capital gains tax. As the details for cryptocurrency now come under Schedule 1 of the U.S. Tax Form 1040 entitled “Additional Income and Adjustments to Income”.
Note that the sale of Bitcoin or other cryptocurrencies is not only taxable income. Activities like trading Bitcoin for other cryptocurrencies, new cryptocurrencies rewarded from hardforks, airdrops of cryptocurrencies, crypto mining, cryptocurrency and masternode staking, etc. also fall under tax considerations.
With cryptocurrencies being relatively new to the global financial markets, the IRS has been incorporating new rules. However, for many, Bitcoin taxation still remains a complex subject.
Speaking on simplifying the crypto taxation process for 2019, IRS Commissioner Charles Rettig said: “Virtual currency is an important addition to the 1040 this year. This emerging area is a priority for the IRS, and we want to help taxpayers understand their obligations involving virtual currency. We will also take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules involving virtual currency.”
Apart from the IRS, major taxation agencies in other economies also treat Bitcoin profits as capital gains and have similar taxation rules, with some minor differences.
Eight Countries Which Don’t Tax Bitcoin Gains
While many countries have been going hard on taxing cryptocurrency profits, there are some crypto-friendly countries that don’t tax any form of Bitcoin or cryptocurrency transactions.
You’ll be surprised to know that this list also includes some top-ten economies and developed countries. As per Bitcoin.com, the eight countries which don’t tax cryptocurrencies include Singapore, Germany, Malaysia, Portugal, Belarus, Switzerland, Malta, and Slovenia. These countries are often referred to as tax-havens for investors.
*The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial, legal or tax advice.