Crypto Taxes - A Trader's Nightmare

/

Photo: Shutterstock

We've all come to realize that people avoid cryptocurrencies and crypto-related activities mainly because they do not want to deal with crypto taxation. Taxation on regular forms of income is tedious, even with documented regulations. 

However, the lack of concrete rules and regulations on crypto taxes makes it even more challenging to accomplish. 

Crypto Taxes in the United States

The IRS suggests that it is compulsory to report all crypto transactions, irrespective of their value. Every American taxpayer is expected to keep a record of the transactions done via Bitcoins regardless of their type. 

It is essential to remember that Bitcoins are treated like assets and not currency. This means that daily transactions at your local supermarket, for example, will be liable to capital gains tax. Your capital gains tax can be short term or long term. Of course, this depends on how long you have been holding your cryptocurrency. 

Photo: Shutterstock

When do you have to pay Crypto Taxes?

Crypto Taxes have to be paid in particular scenarios. These scenarios are the following: 

  • If you happen to sell your cryptocurrency to a third party.

  • If you sell cryptocurrencies that you've purchased from someone, to a third party. 

  • If you use your cryptocurrencies for the purchase of goods or services. 

  • If you use cryptocurrencies bought from someone, for the purchase of goods and services. 

If you hold your cryptocurrency for less than a year before a transaction like a sale or exchange, you will have to pay a short-term capital tax. This is equal to the regular income tax rate. However, if you hold Bitcoins for over one year, you will have to pay long-term capital tax. 

In the United States, people owe 0% Long-term capital tax if they belong to the 10%-15% income tax rate bracket, people owe 15 % if they belong to the 25%-35% income tax and those in the 39.6% tax bracket have to pay 20% Long-term capital gains tax.

Ultimately, individuals pay crypto taxes at a rate lower than their income if they happen to have held cryptocurrencies for over a year. 

Crypto Taxes in India 

The regulations for crypto taxes in India have always been unclear. This seems to be primarily because the RBI doesn't favor cryptocurrencies in the first place. The lack of clear rules and regulations for the same is proof of this. 

The Government and the RBI seem to be on the same side in this respect. The Government proposed a ban on cryptocurrencies and all its related activities. There is an inter-ministerial committee (IMC) that claims to have made this proposition for multiple reasons.

  •  Cryptocurrencies do not possess any intrinsic value, and they lack all the attributes of a real currency. 

  • All the cryptocurrencies are entirely private enterprises as non- sovereigns have created them.

  • Cryptocurrencies do not match the critical features of a regular currency and hence are not capable of serving the purpose of money.  

  • Cryptocurrencies are known to have undergone extreme fluctuations in value since the beginning. 

As expected, the proposal of this ban on cryptocurrency and declaring crypto-related activities a criminal act has resulted in the shutdown of multiple crypto businesses. At this point, we'd say that the future seems bleak for crypto enthusiasts and private companies. 

Photo: Shutterstock

Getting refunds on crypto taxes 

If you are due a crypto tax refund, you may be able to get it in the form of a cryptocurrency. 

There is a company called Refundo, which is a provider of tax-related financial products. It has been assisting U.S. taxpayers in receiving all or at least a part of the refund on their crypto taxes. The platform works with several major tax software such as Turbotax and Taxact. 

Refunds are usually sent to the taxpayer’s wallet. However, the company recently partnered with payments provider Bitpay to enable returns to be sent to the taxpayer via Bitpay’s payouts.

Calculators for Crypto Taxes

The best way to simplify the inevitable process of filing crypto taxes is to make use of a crypto tax calculator. These calculators have proven to be indispensable. There is a variety of calculators for crypto taxes at your fingertips. We highly recommend you figure out the kind of calculator you need to calculate your crypto taxes. Here are a few calculators worth checking out. 

CryptoTax

CryptoTax is capable of importing data from well over 20 major exchanges. It also offers country-specific tax reports that you can generate in more than 30 local currencies.

Cryptotrader

Cryptotrader supports 26 leading cryptocurrency exchanges. It is in association with Turbotax. TurboTax is a leading U.S. tax preparation platform using which you can directly import data into for e-filing.

Koinly

Koinly is one of the lead tax calculators in the market currently. It helps you calculate crypto taxes and significantly reduce your taxable gains. 

In Koinly, data can be directly imported from the 33 exchanges it supports. It can also be imported from five wallets and six blockchains.

TokenTax 

It accepts data from all major cryptocurrency exchanges and helps you calculate your crypto taxes and file tax returns. 

ZenLedger

ZenLedger is yet another tax calculator that works with all the major exchanges and cryptocurrencies. It has officially partnered with TurboTax. This means our data can be automatically imported into this crypto tax preparation software. 

Conclusion

If you're looking to take care of your crypto taxes with minimal effort, tax calculators are the way to go.