Death and taxes, the only certainties in life and, perhaps, this timeworn phrase may also apply to the world of trading cryptocurrencies, as well. Every taxing district and local jurisdiction may or may not have decided how cryptos fit within their existing taxing regulations, but the time to investigate this matter is now and not later. There have already been instances where unsuspecting and unaware citizens have been assessed back taxes, penalties, and interest on previous trading results, which, at the time, they thought were immune from the long reach of the taxman. Not!
In many cases, your local tax authorities may not have focused on digital assets or announced how they would be treated under current rules, but as one reporter noted: “Cryptocurrency is just like any other asset class when tax season comes around. Unfortunately, cryptocurrency taxes appear so complex that few people file them. Others see cryptocurrency as a means to move money illegally – which means avoiding cryptocurrency taxes entirely.” It is legal to avoid taxes, but not to evade them.
The majority of global taxing authorities, however, have taken the time to alert local taxpayers as to the tax consequences of owning, selling, and transferring cryptocurrency positions during a taxable period. As always, ignorance of the law is no defense – the onus is always upon the individual. There may also be different rules for businesses. For example, as one tax return preparer noted: “Regardless of whether the activity is a hobby or business, altcoin miners will be subject to taxes in most countries.”
Here are a few examples of public statements that have been made around the globe by your “friendly” taxman:
Depending upon the government agency, cryptocurrencies can be categorized as intangible property, a commodity, a security, and even a currency in some instances. Tax authorities tend to lean to the former classification, treating cryptos as “property”, subject to long or short-term capital gains taxes. In any event, you will need to keep detailed records of your individual crypto trading transactions, which should include for each item: 1) Trade date; 2) How much you paid for it; 3) How much it was sold for; 4) The cost of doing the trade, and 5) The net gain or loss.
Tax authorities also do not mince words when it comes to the consequences of not reporting crypto trading activity. A spokesperson for the HMRC has said: “We will not hesitate to use the powers Parliament has made available to us to identify those who are intent on evading tax.”
The message is clear. Taxmen in your personal jurisdiction may have already stated their position regarding the taxation of cryptocurrency gains and losses. Now is the time to validate your local tax rules and prepare appropriate records, as necessary.