A Useful Guide To Cryptocurrencies And Taxes

With so much attention on the rising price of Bitcoin and the new, overnight millionaires in the industry, it could be easy to overlook the important topic of taxes. Although blockchain’s decentralisation and anonymity might make you feel as though you can evade paying taxes, the law in various countries is extremely clear on the subject.

Depending on your country of residence, different tax laws apply, and if you think you can keep your transactions a secret you’re forgetting one important feature of blockchain; its transparency. All transactions are recorded on viewable ledgers, with relevant wallet addresses visible. All the taxman needs to do is associate the address with a name.

Cryptocurrency Tax Rules in the United States

The IRS classifies cryptocurrencies as property, so you must calculate your taxes based on this principle. In order to facilitate your tax calculations, keep a record of your transactions, including income from mining and trading. Be sure to also keep a note of your investments in equipment, such as mining rigs, and losses, as these too will affect your total taxes owed.

Simultaneously, the IRS is putting pressure on top US-based exchanges, including Coinbase and Gemini to provide details of their US-based users. Whilst they are requesting that the exchanges fill in what is known as the 1099-K form, there is no room to provide accurate information on capital gains and losses. You can find more information about calculating and paying taxes on crypto in the US via this Coinbase page.

Cryptocurrency Tax Rules in the Rest of the World

Whilst the majority of Europe is made up of the European Union block, individual countries have, so far, taken different approaches to cryptocurrency taxation. In the UK, for example, cryptocurrencies such as Bitcoin and Ethereum are treated as foreign currency and are subject to capital gains tax in case of profits originating from trades.

Their German neighbours treat crypto a little differently. Whilst trading cryptocurrencies do not incur capital gains tax, if the investment is held for less than one year, then income taxes apply. In this case, persons could be taxed up to 45%. A similar approach is taken by the Swiss government, however, residents must also pay profit and wealth taxes for their crypto holdings.

Malta, which in 2018 passed several laws focusing on cryptocurrencies and DLT, takes a more pragmatic approach. In most cases, crypto is treated like fiat currency for tax purposes. In these cases, no income tax or duty is levied, however, capital gains tax do apply for transactions which result in a profit. Whilst these could be as high as 35%, through various structuring options it is possible to reduce this to 5% or even less.

Japan has taken a similar approach to Malta. The country which since 2017 accepts crypto as legal tender taxes crypto as miscellaneous income, with any gains taxed at between 15% to 55%.