Crypto & Tax: Should You Be Worried? — AAX Academy
In some jurisdictions, crypto is subject to tax. Trading, spending or selling crypto can constitute taxable events. Calculating taxes requires you to consider gains and losses and if you’re getting paid in crypto, you might also need to pay income tax.
AAX cannot possibly advise users on their tax obligations and if you are concerned about this, it is best to consult a local tax advisor. Evading tax can be risky and may come with penalties.
Whether you’re a HODLer or a trader, chances are, at some point, you’re going to have to pay taxes. How much you need to pay will differ per country but generally crypto assets are treated as capital assets.
How much tax you owe or if you owe any tax at all, will depend on where you’re based and in some cases what nationality you hold. It will also matter for how long you’ve held crypto, what you’re doing with it and other factors.
Crypto assets are still new and they are rapidly evolving. Regulating these types of assets is difficult and for that reason there is still a lot of uncertainty around how to treat them. Generally though, not knowing about taxes in your country when it comes to crypto, is not a valid reason for not having paid them when you were required to do so.
What is a taxable event anyway?
A taxable event is a transaction or activity you’re required to pay taxes on. These events aren’t always straightforward and, again, they differ per country. Generally, transactions involving the sale of commodities, investments, and other capital assets are all taxable.
Purchasing digital currencies like Bitcoin or AAB with fiat currency is unlikely to be a taxable event. However, selling or trading your crypto is likely to be taxed. Of course, this would not apply if your jurisdiction doesn’t require you to pay capital gain tax at all.
Each country is different. For example, Germany has no tax on crypto held for over a year. Malaysia, Portugal, and Singapore also have very liberal crypto tax rules.
Usually, taxable events include:
1. Selling cryptocurrency for fiat (i.e., USD, CAD, EUR, JPY, etc.).
2. Trading cryptocurrency for another cryptocurrency (e.g., BTC for ETH).
3. Spending cryptocurrencies. In jurisdictions including the US, UK, Canada, and Australia, directly spending your crypto on goods or services can incur taxes if you made profits.
4. Receiving crypto as a result of a fork, airdrop, or mining.
On the other hand, the following are generally not considered taxable events:
1. Buying cryptocurrency with fiat currency.
2. Donating cryptocurrency to a tax-exempt organization.
3. Gifting cryptocurrency under a specific limit.
4. Transferring cryptocurrency from one wallet you own to another wallet you own.
If you’re working as a freelancer or you’re an employee paid in Bitcoin or crypto, it’s likely that you have to pay income tax. This will usually depend on the amount you earn, however.
If your main income comes from trading, find out if you’re subject to capital gains taxes or income tax.
Does the government know about my crypto holdings?
Tax authorities such as the IRS and others do track cryptocurrency transactions and enforce tax compliance. Large crypto exchanges also tend to cooperate with authorities.
Governments use data analytics tools such as Chainanalysis to pinpoint cryptocurrency users. With enough information, they can tie blockchain transactions from regulated cryptocurrency exchanges to personal crypto wallets. These analytics even include multiple layers removed from exchanges to combat tax evasion.
Should I Be Worried?
Not at all. If you’re simply buying cryptocurrency and holding it or even trading it, you simply need to become a bit more aware of any relevant laws that may pertain to your situation.
You can consult a local tax advisor and if needed get some assistance on calculating what you might owe. The idea that crypto is ideal for tax evasion is an illusion. Blockchain technology makes money transparent.
However, this is no reason no to hold crypto or Bitcoin. The idea is of course that holding sound money and trading successfully yields a profit and paying tax on profits doesn’t mean you can’t profit and benefit from crypto.