One of the most significant barriers whilst trading in cryptocurrencies is assessing taxes around cryptocurrency investments and profits. This post is all about taxes on cryptocurrencies and how to calculate them wisely. Cryptocurrency tax laws differ across nations. Cryptocurrency has made an important change in the lives of many people. For instance, Bitcoin is illegal in Northern African countries like Algeria, Egypt, and Morocco but at the same time, it is legal in Southern African countries like Angola, South Africa, and Zimbabwe.
Years after various cryptocurrencies’ launch, there is still noteworthy uncertainty about their taxes. The cryptocurrency was assumed as a mechanism for everyday transactions but it has still yet to achieve traction as a currency. While it has become common with critics and traders involved in making a profit because of the volatility of cryptocurrencies.
Now, in encouraging news for cryptocurrencies, Federal Deposit Insurance Corporation (FDIC) Chairman Jelena McWilliams said in an interview to Reuters that the U.S. Regulators were examining a structure or a framework for banks to allow crypto-related services by giving some transparency over the regulatory barriers. The move is likely to improve FDIC’s control over cryptocurrencies. FDIC is one of the offices accountable for giving bank insurance in American depository institutions.
No matter what type of cryptocurrency trader or investor you are, the main and important question is how to calculate cryptocurrency taxes to stay on the right side of the law.
Taxes on cryptocurrency: How are Bitcoin and other Cryptocurrencies Taxed in the UK and USA?
Now, in the UK, the tax of digital value, the investment or transactions price, or secured income has to be turned into fiat at the exchange rate of a cryptocurrency (market price) working on the date of acceptance of the interest or profits. For instance, stocks, bonds, and other investment holding are regularly capital assets. In the UK, the HMRC is responsible for establishing the revenue and customs systems.
According to HMRC policy paper, any crypto earnings made are subject to the same taxation as a salary – i.e. income tax, national insurance growth. It has also been acknowledged that cryptocurrencies may be preserved as property or used to pay for goods or services at traders where they are accepted. In the UK, there are already various places such as bars, eateries that accept payment by cryptocurrency.
The HMRC guideline is for users who are making money or contrarily making income, in whatever way, from investments including Bitcoin or other cryptocurrencies such as
In the UK, the tax method of any transaction involving the application of cryptocurrencies is being judged based on its own distinct actualities and circumstances. According to HMRC, the tax processing of cryptocurrencies and foreign exchange are still being explored but because of the “evolving” properties of the cryptocurrency market, the HMRC is considering additional planned guidelines.
On the other hand, the Internal Revenue Service of the US has already published directions on the tax processing of transactions employing cryptocurrencies. The trading of cryptocurrencies or their utilization to pay for something, or storing cryptocurrencies is accountable for taxation in the US.
The Treasury Department and the IRS of the US have also recognized that there may be other points about the tax issues of cryptocurrency. Hence, the Treasury Department and the IRS have asked comments from the people about other kinds of aspects of cryptocurrency exercises that should be addressed in future guidance.
In short, it seems like the future will be a breakthrough when it comes to the IRS and taxing cryptocurrency profits in the USA. The IRS describes cryptocurrency as property and as per IRS guidelines, there are capital gain signs.
Taxes on cryptocurrency: How to track your Cryptocurrency Taxes?
Many people don’t know that crypto is taxable in nearly all nations, but this raise some questions for many. After all, isn’t crypto outside the authority of states? Although technically accurate and given the anonymity given by crypto, it’s no surprise many believe there is no requirement to pay taxes on crypto. Let’s be fair, it’s difficult for a state to track down and send tax warnings to people who are trading or investing in crypto, and the absence of laws and regulations makes it even more difficult to implement any kind of tax regulation on crypto. Despite all this, states all over the world have lately stepped up their attempt to gather taxes from crypto.
Taxes are really important for any country but having anything more than 10% on cryptocurrency, is too much. Now, if there is any law about the tax in the countries then it could be especially focused towards cryptocurrency is just attempting to scare people from employing cryptos. Capital gain tax is rather conventional among most nations and if the taxes are assessed as a capital gain tax, then it’s alright. Cryptocurrency is a property and should be construed as such. Having a tremendous capital gain tax is a whole other issue altogether since it concerns things like capital gains from property, stocks, etc.
Taxes on cryptocurrency: Cryptocurrency Taxes Problem? Services like Koinly Can Help!
Here is a simple example of how capital gains can be calculated through an example.
Taxes on cryptocurrency: Image Source: Koinly
To measure the crypto taxes the apps like Koinly which is a free online crypto tax calculator can be used. It has a smooth and instinctive UI and is ideally suited for both established traders and unskilled blockchain fans holding comparatively smaller numbers of cryptocurrencies. Another benefit is that a new user can begin utilizing Koinly for free and only pay when closing reports are expected to be produced, similar to conventionalized income tax software like Sprintax. Also, it also supports the tax regulations of more than 100 countries, 33 exchanges, and 6 blockchains (Example: BTC, BCH, LTC).
It also has numerous other beneficial characteristics like a Portfolio Tracker along with its principal characteristic of the Tax Calculator. They have expanded their tax reports in cooperation with audit experts from KPMG and hence, are lawfully rigorously compliant. Their reports also back all the important accounting systems such as the ACB (Average Cost Basis) and the FIFO (First in First out) process.
Conclusion
As cryptocurrencies become more mainstream, various new cryptocurrency tax tracking softwares will emerge. Yet, in order to make efficient utilization of such software, it is crucial to know the basics of crypto taxes. As with any other software, always do your own research and judge them based on your demands and requirements before choosing a particular cryptocurrency tax tracking software.
