As Global Acceptance Booms, Bitcoin Must Consider Tax Implications


It’s easy to see that adoption rates of cryptocurrencies have soared in the last year, but as tax season rolls around- what do investors need to know?

It’s been a wild ride for bitcoin this year, with many cryptocurrencies following suit. For many new investors, 2020 held a number of enticing incentives to buy into the continually building market. Bitcoin had outperformed a number of traditional investments by a long shot. Not to mention that it has been deemed the safe-haven investment of choice by some top firms. Ethereum announced the roll out of their new “Ethereum 2.0” protocol, effectively changing the entire functionality and scalability of the platform. Finally satisfying the doubts of many who had liquid idiot you’re locked up in the newly popular DeFi that the platform offers.

Blockchain jobs in United States and Canada

Even lesser known cryptos like IOTA and Ripple have been making hearty headway this year as first-time investors flock to platforms like Bitvavo– exchanges specifically designed to help guide them through the oftentimes confusing world of digital currency assets. With a surge in interests, regulatory bodies have been taking a closer look as well- which means investors, both new and old, need to get their tax information in order this year. Because much like its cousin Death, even crypto taxes are coming for us all.

Your Country, Your Rules

Depending on where you live, or what country you invest from, understanding exactly what is required from your bitcoin can be a bit of a convoluted nightmare. While most don’t see it as income per se, there are fundamental differences between each country’s tax laws. The US has been making headlines recently, as they have made a renewed effort to remind their citizens that this year, those digital holdings won’t be overlooked. Despite the country creating regulatory guidelines regarding crypto holdings as early as 2014, the “pseudoanonymous” nature of the digital currency has caused its share of problems in enforcing such laws.

Recently however, thanks to a concerted effort between policy makers and exchanges alike- it’s now next to impossible to hide your portfolio. On the upsides, many exchanges like the aforementioned Bitvavo are also there to walk their clients through applicable tax codes. In countries like Germany and Japan, crypto laws and tax guidance have been clear for sometime. But as the new year approaches, it is indeed out with the old and in with the new. So ensuring you’re familiar with any tax codes come this April may save you a ton of heartache and revenue loss, later.

Crypto Property- Not Cryptocurrency

While each and every country that has had the foresight to enact crypto regulation has their own set of rules regarding how crypto assets are to be classified, the overwhelming majority seem to agree on one thing- Crypto is property, not currency. While it might seem a bit odd at first glance, this is actually just lawmakers looking towards crypto in the same way that they would look at any other investment.

In order to tax cryptocurrency as properties, crypto-holders must report any applicable crypto transaction in their own national currency to their respective tax agencies. As such, the taxable amount will be beholden to the “fair market value” of the crypto on the date of the initial transaction. So knowing both the date the transaction transpired, as well as the fair market value of the crypto at that time will be required in order for holders to lawfully report their crypto. Regardless of whether or not the crypto was actually converted into fiat.

This also means that no matter how you came to own your bitcoin or crypto- buying, selling, trading, winning, or working for it- it is almost certainly subject to tax. For buying and selling, the “realization events”, or when you turn your bitcoin into cash, can either be a tax burden, or a tax boon. That will all come down to how you keep your records, and knowing whether or not gains and losses can offset other columns of your tax responsibility.

Keeping Cryptocurrency Records

Outside of keeping a strict ledger on market prices and transactions- it’s important for investors to note that they may not receive the standard forms or notices that would generally occur should you trade in other assets. Especially for retail investors. They also miss out on a few useful loopholes, like “like-kind” laws or theft protections.

However, there is good news to be had for anyone who not only holds bitcoin, but also some well-kept records- in most countries you can deduct any capital losses that you may incur. Even if they are slowly, and over time. So regular traders who sell at small loses on occasion may be able to not only enjoy some bigger portfolios later, but also some cushy tax reductions. As always though, it’s better to know the laws and plan accordingly, than try to play catch up with a tax agency later.

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