Compared to other currencies and commodities around the world, Bitcoin is incredibly young. Having only been around since 2009, in the 12 years since its inception people are still trying to get to grips with not only the cryptocurrency industry as a whole but the regulations and tax requirements too. Hence, why we’ve compiled this piece on understanding Bitcoin, cryptocurrencies, and tax.
Each To Their Own
As governments scramble to build viable regulatory infrastructures pertaining to cryptocurrencies, each government is taking its own stance on how to tax them. Some are not taxing cryptocurrencies at all, while others are viewing digital assets as property, and treating them as capital gains tax.
Capital gains tax requires you to pay on the profits made from your initial BTC or crypto investment. On the flip side, users could write off their losses and reduce their overall tax bill. This requires users to note the date that the digital asset is bought, the price at the time, and any fees incurred. Then again when the asset is sold.
How Countries View Crypto And Tax
As we’ve previously mentioned, each country has taken its own stance on how they tax Bitcoin and other cryptocurrencies. Here is a brief overview of several countries below:
The U.S. views crypto as property, implementing capital gains tax on any profits or losses made.
The United Kingdom views crypto as a foreign currency, and tax is subject to the losses and gains made. The regulatory board added that “Bitcoin transactions that constitute “speculative transactions” may not be subject to any tax,” with very vague explanations on what that actually means.
Taking a more neutral approach to the taxing of cryptocurrencies, Japan views Bitcoin as a payment method and exempted it from consumption tax in 2017. Japan categorizes digital assets as “asset-like values” and treats profits made from trading them as business income.
Germany has its own unique stance on the taxation of cryptocurrencies. While profits made from trading are taxed at 25% under capital gains tax, this is only applicable if the profits were made in the first year after the initial purchase. All profits made after 365 days after the cryptocurrencies were bought are exempt from any tax.
Then countries like Belarus, Malaysia, Portugal, and several others charge no tax on the personal use of cryptocurrencies.
Crypto Activities That Are Taxable
Depending on what you’re doing with your cryptocurrencies, some transactions are taxable while others are not. Here is a brief overview of the taxable and non-taxable options:
- Trading crypto for crypto (BTC for XRP)
- Selling crypto for fiat (BTC for USD)
- Paying for goods and services with crypto
- Collecting crypto for mining activities
- Collecting crypto as a result of a fork
- Buying crypto with fiat (USD for BTC)
- Crypto donations to tax-exempt charity or organization
- Sending crypto to another user as a gift (unless large enough to get gift tax)
- Sending crypto to another personal wallet of yours
Why Crypto Tax Matters
We can understand how taxing crypto feels counterintuitive to why crypto was created in the first place. Satoshi Nakamoto created Bitcoin as an alternative monetary system to government-run financial institutions, but integrating the payment method into everyday life was always bound to be regulated at some point. Paying taxes allows countries to build up a budget that is used to run, and better, the country in question. The responsibility falls on the user who must first find out the crypto tax laws in their country, and then adhere to them.
Understanding Bitcoin, Crypto, And Tax
Now that we’ve outlined the basics of understanding Bitcoin, cryptocurrencies, and tax, the onus is on you as the user to adhere to the laws of your country of residence. Avoiding tax is a criminal offense, and can be punishable by fines, restrictions, and even jail time. So while you’re buying BTC, ETH, and whatever else your heart desires, ensure that you’re clued up on the tax requirements, and adhere to them.
Article By Crypto Glossary Team