Crypto assets, such as Bitcoin, Ethereum, Ripple, and others, have become one of the popular investment instruments in the digital era. However, many people do not know how to calculate and report taxes on profits or losses obtained from crypto asset transactions.
This article will explain some important things you should know about crypto asset taxes, especially in the United States, United Kingdom, and Canada.
Taxation of Crypto Assets in the United States
In the United States, the Internal Revenue Service (IRS) classifies crypto assets as property and not currency. This means that the tax rules that apply to property also apply to crypto assets, except for real estate property tax rules.
Thus, every time you sell, exchange, or use crypto assets to buy goods or services, you must report the capital gain or loss arising from the transaction. Capital gain or loss is the difference between the selling price and the buying price of a crypto asset.
The level of tax you have to pay depends on two factors, namely the amount of capital gain or loss you earn and the length of time you hold crypto assets before selling them.
If you hold crypto assets for less than a year, you will be subject to short-term capital gains tax, which is the same as your ordinary income tax rate. If you hold crypto assets for more than a year, you will be subject to long-term capital gains tax, which is lower than your ordinary income tax rate.
If you suffer a capital loss, you can reduce the loss from other capital gains you have. If your capital loss exceeds your capital gain, you can deduct up to $3,000 per year from other income.
If your capital loss is still greater than this amount, you can carry over the remaining loss to the next tax year.
To report crypto asset taxes, you must complete Form 8949 and Appendix D of Form 1040. You must also answer yes or no questions about crypto asset transactions on Form 1040. If you do not properly report crypto asset taxes, you may be subject to fines or sanctions by the IRS.
Crypto Asset Tax in the UK
In the UK, Her Majesty's Revenue and Customs (HMRC) considers crypto assets as assets that can be traded and not as currency or money. This means that the tax rules that apply to crypto assets depend on the activities and status of the individuals involved in crypto asset transactions. In general, there are three types of taxes that can apply to crypto assets, namely:
Income tax
Income taxes may apply if you receive crypto assets in exchange for employment, services or other income-generating activities. For example, if you receive Bitcoins as wages, tips, or gifts, you must report the value of those Bitcoins as income and pay income tax according to your tax rate.
Capital Gains Tax
Capital gains taxes may apply if you sell, exchange, or give away crypto assets at a value higher than your cost. For example, if you buy Bitcoin for 1,000 pounds sterling and sell it for 2,000 pounds sterling.
Next, you must report capital gains of £1,000 and pay capital gains tax at your tax rate.
Value Added Tax
Value added tax (VAT) may apply if you sell goods or services related to crypto assets. For example, if you sell Bitcoin mining hardware, you must charge VAT to the buyer and pay VAT to HMRC.
However, VAT does not apply to crypto asset transactions themselves, such as buying and selling or exchanging Bitcoin.
To report crypto asset taxes, you must fill out a Self Assessment Tax Return and attach details of your crypto asset transactions. You must also keep records of your crypto asset transactions for at least six years. If you do not file your crypto asset tax returns correctly, you may be subject to fines or sanctions by HMRC.
Crypto Asset Tax in Canada
In Canada, the Canada Revenue Agency (CRA) considers crypto assets as commodities and not as currency or money. This means that the tax rules that apply to crypto assets depend on the nature and purpose of the crypto asset transaction. In general, there are two types of taxes that can apply to crypto assets, namely:
Business Income Tax
Business income tax may apply if you run a business related to crypto assets, such as mining, trading, or consulting services. In this case, you must report your business income and expenses related to crypto assets and pay business income tax according to your tax rate.
Capital Gains Tax
Capital gains tax may apply if you acquire a crypto asset as an investment and sell it for a value higher than your cost. In this case, you must report half of your capital gains related to crypto assets and pay capital gains tax according to your tax rate.
If you suffer a capital loss, you can reduce the loss from other capital gains you have. If your capital loss exceeds the capital gain, you can deduct the rest of the loss from other income.
Then, you must carry the remaining losses to the next tax year, or carry the remaining losses to the previous tax year.
To report crypto asset taxes, you must fill out an Income Tax and Benefit Return and attach details of your crypto asset transactions. You must also keep records of your crypto asset transactions for at least six years.
If you do not properly file your crypto asset taxes, you may be subject to fines or sanctions by the CRA.
Conclusion
Crypto asset tax is one of the things you must pay attention to if you are involved in crypto asset transactions, whether as an investor, trader, miner or service provider.
Each country has different tax rules regarding crypto assets, so you must know and comply with the tax rules that apply in your country. Thus, you can avoid legal problems and maximize your profits from crypto assets.
How To Buy Crypto With Bittime
You can buy and sell crypto assets in an easy and safe way via Bittime. Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappbeti.
To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet . For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application.
Monitor price chart movements of Bitcoin (BTC), Ethereum (ETH), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.
Read also:
Unveiling Cryptocurrency Scams
What Are Cryptocurrency Pairs?
Understanding Cryptocurrency Wallets
DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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