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Understanding Digital Cryptocurrencies and Crypto Tax
Storing your Crypto currency that was purchased with cash and contained it in safe keeping without making transactions is not subject to pay Crypto tax as there is no capital gains or losses.
In 2014, digital Cryptocurrencies were declared to be considered as property. The people who work as regulators and for the Financial Crimes Enforcement Network provide the laws and regulations to other governing bodies to carry out these operations.
Ultimately, the Internal Revenue Service (IRS) is a branch of the Treasury Department. The IRS does not make the laws, they have to enforce them. Although the same issues do arise such as the IRS now looking into ATMs’ that disperse crypto currency as a front for laundering money and tax evasion affairs.
As of late November 2019, there are 4131 kiosks that deal in cryptocurrency in the United States according to Coin ATM Radar.
Evasion of Crypto tax seems to be a on a rise
Evasion of crypto tax seems to be a on a rise, by people looking to evade payments
A fee must be paid for trades to be converted from fiat currency to Cryptocurrency instantly. The ‘trust no one’ attitude of the IRS has made some in the agency doubt the legitimacy of the trades that take place and are interested in conducting background checks to those who actually operate the kiosks.
Evasion of Crypto tax seems to be a on a rise, by people looking to evade payments and by people not knowing if they are liable to make payments based on their Crypto tax. Many were under the assumption that they were excused from paying Crypto taxes due to their being a like-kind tax exemption.
The exemption was initially thought to allow transactions for the disposal of an asset and the procurement of another similar asset without spawning a capital gains liability tax due to the sale of the first asset.
New guidelines for filing of Crypto tax
This is not the case, as the IRS has reissued new guidelines for the calculation and filing of Crypto tax with updated tax forms and rules pertaining to, whether previous years’ transactions unaccounted for should now be clubbed with one’s 2020 tax reports.
Large number of Crypto transactions have gone unreported prior to 2018. Many Crypto exchanges didn’t hold on to all trade information made. People were under the pretense that if a form of Crypto currency is traded for cash value then it must be accounted for.
Crypto investors and venture capitalists with a large Cryptocurrency imprint will come under close scrutiny. Especially in the coming tax returns filing 5 months from now. It would be wise to consult with a tax attorney or personal accountant to check for any exposure dating back to prior years.
In case one did receive a letter from the IRS, sent by them to over 10,000 defaulters who have knowing or unknowingly avoided Crypto tax payments. Do not fret, filing an amended tax return could help as the amount of a fine due, no matter how hefty is a better substitute than a jail term.
Crypto transaction history and information
Coming back to the letter posted by the IRS for who they consider to be neglectful of Crypto tax payments. There are 3 versions of the letter which contain the penalties for mischievous.
The letter with the least amends states that taxpayers who believe that they filed returns according to the law, are to sign a statement under the penalty of perjury. They will get a visit from the IRS be it through call or in person.
Digital currency is to be considered in the same way as an investment, property or real estate when it comes to taxes. Coinbase, the digital currency exchange was ordered by law to provide Crypto transaction history and information for over 13000 accounts.
The regulating body knows big players in the cryptocurrency platform haven’t put all their cards on the table. However, all the points listed above are mainly for people residing in the United States.
If one is outside the U.S. jurisdiction then, Crypto tax laws are subject to change. Different countries implement Crypto laws in different ways. Your best option is to contact a tax advisor from your specific country.
On to what is actually taxable for Cryptocurrency
Selling cryptocurrency for cash
Includes realizing gains or losses on your crypto tax property.
Buying another cryptocurrency with existing cryptocurrency
When converting between cryptocurrency such as, using bitcoin to buy ethereum is considered a disposition of the bitcoin
Also read about bitcoin tax rate.
Receiving Cryptocurrency through mining
Including bitcoin, ethereum classic, and basically any form of virtual currency. The coins mined should be converted to the price of the U.S. dollar. The amount will be based on the value of the dollar on that specific day.
Paying for commodities or services
Using cryptocurrency to purchase food at a restaurant, clothes, groceries, public transport payments, etc.
Remember, the value of the sum of the transaction should be recorded in the conversion rate of the U.S. dollar.
Donating Cryptocurrency to a charity organization or non-profit
One can claim a deduction equal to the fair market value of the cryptocurrency donated.
Buying Cryptocurrency with cash and holding it
Storing your Cryptocurrency that was purchased with cash in safe keeping. Without making transactions is not subject to pay Crypto tax, as there is no capital gains or losses.
Transferring Crypto between wallets
While storing cryptocurrency to different wallets and the transfer of cryptocurrency between them. Always check records of your exchanges to confirm they’re not recorded as dispositions.
For example, when transferring Crypto between Coinbase accounts, or from an external wallet to a Coinbase account. Also no Crypto tax payments are required.
