Friday 17 September 2021
Home / bitcoin news / Why Bitcoin Taxes and Regulations are a good Thing
Bitcoin Taxes

Why Bitcoin Taxes and Regulations are a good Thing

Why Bitcoin Taxes and Regulations are a Good Thing

Bitcoin has generated a lot of interest in society and governments through constant reporting. Some were able to make high profits, others had to make losses. The enormous uproar led to discussions about Bitcoin taxes and regulations coming to the fore. This article explains different approaches to cryptocurrency taxing and managing your crypto fund. Taxation of cryptocurrencies differs from country to country, so we focus primarily on the United States and their tax systems in development. We will discuss the following points:

  • Contrasting approaches to Bitcoin taxes
  • Taxation of cryptocurrencies
  • Tax return: good or bad
  • Are there any simplified solutions?

 

Do you have to pay taxes on Bitcoin

A lot of people keep asking questions like How to cash out Bitcoins without paying taxes? Or how to not pay taxes on Bitcoin? Follow the article to get more information. Some in the crypto community consider Bitcoin taxation contradictory, as it is against the anonymous and decentralized approach. Others find it difficult to understand how to tax Bitcoin. Why pay taxes on anonymous income and transactions in such an undefined and unregulated environment?

In many countries, such as the USA and some EU countries, cryptocurrencies/crypto value investments are subject to taxation. If they are sold or exchanged, there is a capital gain or loss. Profits and losses in cryptocurrencies can also be claimed for tax purposes.

 

Just as the value of traditional fiat currencies is determined by the market, the bitcoin price is composed of demand. As Bitcoin continues to penetrate the financial market and has high volatility, this can lead to a complicated tax return

 

Differences in Bitcoin Taxation

As the price of bitcoin soared to its all-time high and users made profits, governments realized that this was an investment that would increase in popularity and usage. As a result, various governments began to look into the matter and develop strategies. Some carried out “crypto raids” that focused on extensive crypto taxation or even banned crypto trading. Other countries agreed to create a solid framework for a Bitcoin tax.

The taxation of cryptocurrencies in individual countries depends primarily on their definition or. what they are used for. In countries like Japan or Switzerland, a crypto-friendly approach is followed. They are trying to introduce regulations while taking advantage of the innovative, blockchain-based cryptocurrencies.

In February 2018, the Swiss authorities published guidelines on “Initial Coin Offerings” (ICOs), which are used to finance projects. These indicate that ICOs are in most cases to be treated as securities. These guidelines enable legitimate and innovative projects to find their way in this new market. The creation of such an environment enables entrepreneurial innovations.

The European Union is lagging behind in its crackdown on crypto taxes. In 2015, only the Court of Justice of the European Union ruled on the relationship between VAT and Bitcoin. Many EU countries see no need to enact new regulations and prefer to wait for the EU to continue issuing guidelines. As a result, state tax authorities use their national tax systems to handle cryptocurrencies, but this often leads to greater legal uncertainty.

In contrast, a regulatory framework for taxing cryptocurrencies has already been created in the USA. According to the US Internal Revenue Service (IRS), cryptocurrency should be treated as an asset. As a result, cryptocurrencies in the US are subject to the same taxation as other assets (stocks, bonds).

The IRS classifies Bitcoin as a “convertible” cryptocurrency because it can be exchanged for other cryptocurrencies, or for fiat currencies, both exclusively online. In the United States, the sale, exchange, and use of Bitcoin and other “convertible” cryptocurrencies to pay for goods and services is considered a taxable transaction.

Some other nations are also trying to adopt stricter guidelines against the use of cryptocurrencies. For example, China has banned crypto trading, and India is taking steps to make crypto payments illegal.

 

Taxation of cryptocurrencies

The accounting effort for taxing cryptocurrencies can be enormous if you don’t take care of it in time. The type and date of the transaction, Fiat exchange rates at the time of the transaction, use of multiple wallets or exchange platforms must be taken into account and stated.

Taxation of bitcoin

A tax liability can apply to trade, mining, paying, converting cryptocurrencies, so-called airdrops, ICOs or receiving cryptos as a reward/ payment. However, there are still large differences in the way these transactions are handled and the tax to be used within the various legal systems.

 

In the future, it can be assumed that similar to the USA, taxation on crypto transactions must be carried out in the respective local currency. The exchange rates on the day of the transaction must be taken into account. These values can be read, for example, from coinmarketcap.com or charts.bitcoin.com

 

Bitcoin Tax Reporting: good or bad

Some EU institutions and member states are concerned and see cryptocurrencies as a way to conduct illegal activities. At the same time, they have not yet developed a complete legal framework for crypto.

At the beginning of 2018, the members of the European Parliament and the European Council agreed that wallet providers and exchange platforms should verify the identity of their customers. Service providers should meet their due diligence requirements to prevent illegal cryptocurrency-related activities. However, users are still waiting for exact EU legislation.

A study by the Center for Sanctions and Illicit Finance (CSIF), part of the Defense of Democracies Foundation (FDD), found that between 2013 and 2016, only 0.61% of transactions in Exchange services were related to illegal activity.

However, while Bitcoin’s price rose to an all-time high of nearly $ 20,000 in 2017, it didn’t result in an increase in crypto-related criminal activity among tax authorities.

Furthermore, in the United States, on April 13, 2018, it was found that only 0.04% of 250,000 people who submitted their tax reports using tax preparation software reported crypto assets. Likewise, in 2016, only 800 people reported their crypto assets to the IRS (US Internal Revenue Service).

 

Poor reporting may be due to continued uncertainty about Bitcoin’s legal status, potential resistance to taxation, and difficulties in clearing cryptocurrency transactions. The difficulties with billing are due to the lack of simple guidelines, the many different exchange rates in cryptocurrency trading and the difficult recording of potential gains or losses on transactions.

With a simple official policy, the process of actively recording transactions and deriving profits and losses would be easier.

For some countries, such as the United States, retrieval of user data from the Exchange platforms will prevail in order to ask them to pay taxes for the past few years.

Between 2013 and 2015, US agents from the IRS carried out an investigation against the exchange platform Coinbase Inc. in order to maintain the identity of the users and to ask them for tax reporting. After a lengthy lawsuit against the IRS, Coinbase eventually had to disclose user data of approximately 13,000 users who had more than $ 20,000.

It is believed that the IRS will continue to investigate and discover thousands of more users who have not reported their tax reporting on cryptocurrencies. Because the United States’ action is aimed at combating tax evasion, online drug trafficking, and other illegal activities.

That is why it is very important to always have an overview of your profits since the investigations by the authorities will certainly be more concrete in the future. The IRS can not only require the taxpayer to present its accounting for the last tax year, but also that of the past three years. For some users, this can take a lot of accounting work

 

Final Thoughts 

While this guide contains information on Bitcoin treatment and taxation, it is not intended to provide tax or legal advice. We do not offer tax advice and strongly recommend that you consult a tax professional or tax advisor to get recommendations on what to do with your crypto tax certificate.

 

With ExPay 24 you can convert your bitcoins to PayPal. In addition to bitcoin, you can have the same conversion for other currencies such as Ethereum, Webmoney, and Tether. You can also convert different types of currencies.

About Sean Patterson

Check Also

DOGE in Expay24

We have added Doge to our service today and we have offer for this services …

Leave a Reply

Your email address will not be published. Required fields are marked *

1 × 2 =