Legal & Economic Issues
- Is Bitcoin legal?
- Crypto taxes explained (U.S. specific)
- Is cryptocurrency regulated by consumer protection?
- What are the advantages of cryptocurrency?
- What are the limitations of cryptocurrency and the blockchain?
- Is Bitcoin a bubble? Is it too late to invest?
- Is Bitcoin a Ponzi scheme?
- Thoughts on BitConnect, USI-Tech, and similar programs
U.S. Crypto Taxes Explained (Happy Tax)
I’m sure you’ve heard the famous quotation by Benjamin Franklin: “There are only two things certain in life: death and taxes.” Well, unfortunately, the cryptosphere is no different when it comes to the latter.
As much as we all dislike paying taxes on our cryptocurrency investments, we need to bone up on and comply with tax laws in our own jurisdiction or face possible penalties for non-payment. Taking a few minutes to read this article may save you a world of headache later.
This article will cover:
- Basic tax laws around the world
- FAQ about tax laws in the US
- What countries are free of crypto taxes
- The key to easy tax prep
- How to get free tax support in the US
Basic Tax Laws Around The World
The European Union
In the European Union, cryptocurrency is taxed as currency and not property. Therefore, buying and selling cryptocurrency does not incur a value-added tax (VAT.) However, cryptocurrency may be subject to other taxes, such as “wealth”, capital gains or income taxes.
That said, tax treatment in the EU varies from one country to another. In Finland and Germany, for example, capital gains tax and a “wealth” tax can be imposed. Over in Austria, cryptocurrency is subject to income tax. In Spain profit and loss from cryptocurrency sales are included in the annual tax return, although the percent charged varies according to the volume of profit — the higher the profit, the greater the percentage. And in Sweden profits are only taxed if your “hobby” of trading results in profits of 25 or more “Bitkoyn” in one year. In the EU The Netherlands is more or less one of the semi crypto tax havens (for the time being); although cryptocurrency holdings are subject to a relatively minimal “wealth” tax, no taxes need to be paid over capital gains!
In the UK, cryptocurrency is taxed the same as foreign currency with respect to gains and losses on each transaction. However, cryptocurrency transactions that constitute “speculative transactions” may not be subject to any tax. Ask your accountant more specifically about local laws.
In Australia, cryptocurrency transactions are treated the same as barter arrangements and cryptocurrency is considered to be an asset for capital gains and loss purposes, instead of currency. While businesses must properly document and record their cryptocurrency transaction, individuals are exempt from taxation for personal use if cryptocurrency was used as payment for goods and services or if the value of the transaction is less and AUD 10.00.
Similar to Australia, payment in cryptocurrency for goods and services in Canada is taxed as a barter transaction. Salaries in Canada are also subject to taxation as are profits from mining for commercial purposes.
In Japan cryptocurrencies viewed like asset that can be used in making payments and transferred digitally. Therefore, digital currencies are no longer bear a consumption tax of 8%. However, trading digital currencies — as opposed as using it for payment — is taxed using capital gains guidelines.
The United States
In the United States, cryptocurrency has been a taxable asset since 2014. It is taxed as property rather than currency which means that the tax treatment is very similar to stocks, bonds and other investment property.
While you do not have to report the initial purchase of cryptocurrency on your returns, you do have to report all sales and exchanges for that year on your tax return. And contrary to popular opinion, crypto-to-crypto trades are not excluded from taxation as like-kind exchanges. They are considered to be the sale of one asset for another, which is a taxable event.
FAQ about tax laws in the US
Here are some frequently asked questions about cryptocurrency taxation in the US. And not to ruin the fun, but the answer to all of them is Yes.
Q: What if I sell my coins or tokens for traditional money or buy something with my coins? Is that a taxable event? A: Yes.
Q: What about privacy coins? Are those taxable? A: Yes.
Q: Are mining earnings taxable? A: Yes.
Q: If my employers pay my wages in cryptocurrency, are my wages taxable? A: Yes
Q: If I received cryptocurrency for work I did as an Independent Contract, do I have to pay taxes? A: Yes
Q: Are virtual currency winnings from gaming taxable? A: Yes
Q: Are gambling winnings taxable? A: Yes
Get the idea? More likely than not, cryptocurrency income is taxable. The bright side is that losses are deductible. And miners can write-off expenses and depreciate their equipment similar to a standard business.
Crypto Tax Havens
If you’re really adverse to paying cryptocurrency taxes, are there any countries that don’t tax gains? Yes! Some of these countries are (at the time of writing) Hong Kong, New Zealand, Switzerland, Barbados, Malaysia and Mauritius.
So if you are living in one of the above-mentioned countries, enjoy the capital freedom. And if you are not from these countries, then you might want to move there!
The Key to Easy Tax Prep (U.S.)
Taxpayers who fail to comply with tax laws may become subject to penalties. The key to complying with tax laws and accurately assessing crypto-related taxes is by maintaining records of all transactions. Unlike most brokered securities, blockchain-based currencies don’t keep information that is automatically recorded and reported to tax authorities. So good recordkeeping is the responsibility of you and your accountant. Make sure to keep backup copies of all digital transactions.
What sort of paperwork is required? In most cases, you don’t have to report when you made your initial actual purchase, but you should keep good records of how much you paid and how much it sold for. You then report the sale in the appropriate year’s tax return.
How to Get (Free) Tax Support in the US
Regardless of where you live, don’t risk misfiling or overpaying on your crypto return. Hire a professional accountant if you need help figuring out your tax liability.
If you live in the US and need help preparing your crypto tax returns, we recommend reaching out to the experts at Happy Tax. As the first and only national FinTech firm to offer bitcoin and crypto tax preparation and accounting, Happy Tax has the most experienced bitcoin and crypto tax preparation practice in the country. Their tax returns are 100% prepared by US-based licensed Certified Public Accountants. Clients include miners, day traders, casual investors, early adopters, and businesses accepting bitcoin as a payment method. Happy Tax prepare taxes for clients in all 50 states.
This article was written to the best of our knowledge with the information available to us. We do not guarantee that every bit of information is completely accurate or up-to-date. Please use this information as a complement to your own research. Nothing we write in any of our articles is intended as investment advice nor as an endorsement to buy/sell/hold anything. Cryptocurrency investments are inherently risky so you should never invest more than you can afford to lose.