If you’re a crypto user, there are a few things that you’ll need to stay on top of for your own good. You should know how best to store your tokens to avoid losing them. You should know the best sites to trade tokens on. You should know how each token you invest in operates. And, of course, you should know about crypto taxation.
Crypto tax is a very delicate issue as up until a few years ago, it was largely ignored by governments around the world. Now, it is a major issue and one you should educate yourself on to avoid falling on the wrong side of the law. Here are a few things to keep in mind.
The State of Crypto Taxation Laws
Two of the most important things to know about crypto tax are that it differs from one country to the next and that it is based on the legal classification of crypto assets. One of the longest-running conflicts between the crypto and mainstream financial worlds is whether or not crypto is an asset or a currency. If crypto is seen by the government as an asset or a security, as some suggest, it will be taxed as such.
For example, the UK classifies crypto as capital assets and taxes it at a 20% rate. Italy, on the other hand, classes crypto as foreign currency and taxes it at zero if the income gained is below €2,000 and 26% for income above that amount. The amount of tax you will need to pay on your crypto assets ultimately depends on where you live and how your government recognises them.
It is also important to note that crypto tax laws are always changing. Some countries have changed their legal classification of crypto or their tax rates and anyone who deals in these assets should stay abreast of such changes. The best way to do this is to follow crypto news platforms that report on developments in the crypto world, including those that have to do with tax.
Crypto Tax and Asset Disposal
While we’ve discussed the varying crypto tax rates in various countries, it is also important to explain when these rates kick in. Cryptocurrency is generally seen either as income or as an asset and thus, is usually taxed when it has been disposed of i.e. sold. Let’s say you mine a single Bitcoin on your computer and put it in your wallet. You don’t have to pay any tax on it at that point.
It is when you sell the Bitcoin for fiat or another crypto that it may be subject to taxation. There are also situations where you have to pay tax even if you don’t sell your crypto assets. As the UK’s tax authority explains, receiving crypto above a certain value will make it subject to reporting and possibly tax.
This is also true if you gamble with crypto. Crypto gambling on websites and apps like the Telegram casino has become a popular pastime for some investors, with increased privacy and more control being some of its benefits. They are also very simple to use: with your Telegram account, you are able to register an account in seconds and make deposits with all major cryptocurrencies - including ETH, USDT, LTC, and DOGE. As a result, crypto betting sites and casinos are now a common way for consumers to multiply their assets but this could also have some tax implications. Because it could lead to profit being made and could be classified as asset disposal, crypto tax might also kick in.
Crypto Business Tax
Besides individuals who are using crypto as an investment or for spending, many businesses these days are also including these assets in their business models. This includes accepting crypto as payment from customers, paying staff in crypto, paying for business expenses in crypto, and much more. While this is quite innovative, it also comes with its own tax implications that differ a bit from individuals.
If your business buys and sells crypto assets, it may be subject to income tax or corporation tax. If a business undertakes a loan using crypto, some tax authorities like the one in the UK will not legally recognise it as crypto isn’t considered legal tender. Income obtained through mining will be subject to capital gains tax at whatever point that it is disposed of.
A business that pays its employees in crypto will be responsible for paying tax on the assets as they would fiat currency. Ultimately, when a business decides to deal in cryptocurrency to any degree, it will have to pay tax on it, subject to whatever laws are in place within its country.
These could be capital gains tax, income tax, and whatever other charges are imposed by the government.
Help For Crypto Tax Filing
With crypto tax becoming a more prominent issue, as well as the legal implications for not adhering to them, more people and businesses are trying to get on top of their taxes. The good news is that there is now a wealth of options to help them do so. Tax firms are starting to offer crypto tax-related services with in-house experts who have studied and understand how to navigate the different laws.
Then there are services that help crypto users automatically file taxes on their transactions by connecting their wallets and tracking how much crypto was bought, sold, and traded, as well as the different prices. Even crypto exchanges are starting to take more action as several of them allow users to automatically generate transaction history which can then be given to a tax expert to determine how much they owe.
It is worth noting that crypto exchanges are being approached by tax authorities to hand over information regarding their users in a bid to find those who have evaded their taxes. So while crypto tax laws are more detailed (and perhaps more complicated) than ever, there are endless resources to help people and businesses pay the correct amounts.
Governments Are Cracking Down, Even on Past Users
Another thing to know about crypto tax is that governments are taking the matter much more seriously these days. Crypto tax might have been a non-issue a little over a decade ago but now, tax authorities are coming after those who don’t comply, even those from years prior.
In 2023, the United Kingdom released a joint statement with 48 other countries which reaffirmed the commitment to enforcing crypto tax measures.
“The Crypto-Asset Reporting Framework (CARF), spearheaded by the UK, is the OECD’s latest flagship tax transparency standard. It will mean crypto platforms will need to start sharing taxpayer information with tax authorities, which currently they do not do, ensuring these authorities can exchange information to enforce tax compliance,” the official statement said.
It was noted that the framework will take effect in 2027, giving exchanges and other businesses time to clean up their act. Just recently, the Australian Tax Office sought information from crypto exchanges of about 1.2 million users to determine who had been paying their taxes and who had not. From the United States to Australia, the pressure to pay crypto tax is fast intensifying, with heavy fines to be imposed on those found non-compliant.
This reinforces to crypto users the importance of filing their crypto-related taxes, either alone or using the myriad of tools and services available to them.
Fun Facts
As crypto and taxation have become more intertwined, there have been several interesting developments and milestones that make for some fun facts:
• In 2024, Frank Richard Ahlgren III, of Austin, Texas was charged by the IRS for underreporting the sale of about $4 million in Bitcoin from 2017 to 2019. This represented the first time in history that the IRS would charge someone for crypto tax evasion. • In 2019, a Swedish man was charged roughly $400,000 in tax for crypto transactions, even though he’d made about $5,000 in total. The story gained widespread media coverage and showed the dangers of crypto tax laws being applied without consideration for nuance. • In the state of Ohio in the US, residents can pay their taxes using cryptocurrency, which represents a first for the country, though there has been talk about crypto being used for tax in other places in the future. • Crypto taxation is an especially tricky issue when it comes to privacy tokens that cannot be traced like Monero, the use of crypto on the dark web, or simply the use of crypto with no interactions with exchanges or traditional banks. In such cases, it is difficult to tell who owns a crypto asset, much less tax them for its use.
Conclusion
If you are going to be using cryptocurrency for whatever reason, it is imperative that you do so within the bounds of the law, and this includes taxation. In this article, we’ve identified some of the things to keep in mind, including what crypto is usually taxed, what affects the tax rates, and how you can make sure you are paying the right amount.
Crypto tax laws will continue to evolve just as the industry does and while new laws will come and go, it is apparent that crypto taxation is here to stay.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
