In the early days of Bitcoin, to find it in the same sentence with the word tax would have been odd. Even till today, the tax regime on cryptocurrency is not consistent. Different governments and their regulatory bodies are searching for the most suitable means to ensure that citizens are responsible with their earnings. But here is a technology that is focused on breaking the shackles of centralization. So far, there have been varying developments on the subject, depending on the region. With respect to this, this is what you need to know about tax and crypto.
First of all, it is important to note that there is no consistent rule across the board when it comes to Bitcoin and cryptocurrency taxation. Different regimes have found what is most suitable for them at the moment. However, most of the tax rules across these regimes look like what they hold on a temporal basis. We will take a look at some of these regimes and see how the go around getting citizens to pay tax on their crypto holdings, or transactions.
How is Bitcoin Taxed in Your Country?
In the United States, Bitcoin and cryptocurrencies are treated like assets or properties. Therefore, anyone who is in possession of such will be obligated by law to pay the capital gains tax. This tax is usually paid on properties whose valuation is expected to change over a period of time.
When properties are concerned, capital gains is charged on the difference between the original value of a property and the price at the time of sale. Therefore, assuming that you held Bitcoin for a period of time before selling, and during this time the value goes up, you’ll be taxed on the profit. This is how it works in the US.
This is the same system that is adopted by the United Kingdom in taxing Bitcoin and cryptocurrency. The difference in this case however is that whether a particular crypto qualifies as an asset or private money is determined by a court on a case-by-case basis.
Germany considers Bitcoin and cryptocurrency to be private money. This qualification exempts it from capital gains tax and sales tax. However, if you own Bitcoin or any other crypto for less than one year in Germany, you will have to pay a progressive income tax of up to 45% for all the gains.
Switzerland on the other hand considers Bitcoin and cryptocurrency as a Foreign currency. Neither the capital gains tax nor the sales tax applies for tokens held in Switzerland.
Further on what you need to know about tax and crypto includes the fact that Japan considers cryptocurrencies a legal method of payment. It has been that way since 2017, an act that has earned Japan the reputation of one of the most advanced countries in terms of cryptocurrency.
As a legal method of payment, Bitcoin and cryptocurrency are exempted from consumption tax, but liable to capital gains tax in Japan.
China does not impose any form of tax on Bitcoin and cryptocurrency. This is simply due to the fact that it is only regarded as a virtual commodity.
How to Follow Up on Taxes
It is easy for Bitcoin and cryptocurrency users to assume that the relative anonymity of transactions means that the government cannot ascertain who holds what. While in less developed nations where systems are not well organised, that sentiment could fly. However, where institutions are very functional and ideal, such assumptions could be totally wrong.
Bitcoin and cryptocurrency transactions do not happen within the centralized regulated government networks. However, there is usually a point where the need for mainstream interaction comes up. It is at such points that proper accountability can be introduced to be sure that tax regulations are adhered to.
Therefore, assuming that using cryptocurrency can be a means to evade tax and other monetary responsibilities is incorrect. The only thing is that more work is required to figure out the details involved than when using fiat. This is mainly because taxation systems for fiat have been around for decades.
Today, as described above, different regimes have so far defined Bitcoin and cryptocurrency in a way that will suit their approach. We must also keep in mind that most of the regulatory frameworks in those regimes today are still a working progress. We are set to see a lot of modifications as the industry evolves.
How do I Manage my Crypto Taxes?
The responsibility lies on the crypto holder to declare holdings appropriately and at the right time. This will avoid complications and any breach of legality at the point of interaction with mainstream systems.
Individually, following up on your holdings can be cumbersome and confusing, especially for very active crypto users. That is why crypto platforms like tap serves every purpose that your local bank would serve. With tap, you can easily control and account for all your cryptocurrency transactions.
Therefore, in order not to break any rules or go contrary to the laws of your location, you need to pay attention to what you need to know about tax and crypto at every given time. This puts you on the right track and helps to inform your overall investment decision when dealing with Bitcoin and cryptocurrencies.
It's only a few taps away.