In the world today, many tax authorities have tried different techniques to bring tax regulations on Bitcoin.
When it first came into the market, Bitcoin attracted a lot of people due to the fact that it is not regulated, and because it can be used for different transactions and at the same time, avoid paying taxes. The universality of bitcoin also made it hard or almost impossible to track intercountry transactions.
The US Internal Revenue Service (IRS) and other top countries’ tax authorities are mostly on the same page regarding taxing Bitcoin transactions.
The IRS has already stated that Bitcoin should be treated as an intangible property or safely put as an asset, and that it should not be treated as a currency because it is not issued by any central bank. The fact that Bitcoin is being treated as an asset now sheds more light on the tax implication.
We only see a few countries that consider a digital asset as a currency that can be taxed. Germany for instance does consider Bitcoin as private money, as opposed to a stock or commodity or even a currency, commodity.
Keeping Up with the Pace of Change
The IRS has already put it in law to report any bitcoin transactions, no matter how small the value. This means that all United States taxpayers are required to always keep a record of any bitcoin transactions, which range from selling, buying, and investing.
So what Bitcoin transactions can lead to tax?
Selling bitcoins – This includes the Bitcoin that are mined personally and sold to a third party and also Bitcoin bought from someone and sold to a third party;
Using bitcoins – Bitcoins that are mined and used to purchase goods or services;
Using bitcoins – Currencies bought from someone and used to purchase goods or services.
Since Bitcoin is now being treated as assets, using this cryptocurrency for any type of transaction will lead to a capital gains tax. This might be short-term or long-term, but it really depends on how long you plan on holding the bitcoins.
When you trade your Bitcoin on Bitcoin Equaliser app, you are covered in this aspect.
Great care must be taken when transacting with Bitcoins. Why is this? Bitcoin Taxation and reporting is not simple as it seems. For starters, it is kind of difficult to determine a fair value of any its transactions.
Also, the fact that Bitcoins are very volatile cannot be overemphasised, and there can also be a large swing in prices in a few moments of trading. A solution to this is, if you buy bitcoin with the day’s high price, you are allowed to use the same price for sales as well.
What are the steps to take so you are not get caught up in tax penalties when it comes to Bitcoin transactions?
There is no better time to prepare for the next taxation period or season than now! So many people might want to postpone it till when they really need to do it, but we advise you to take that bold step today, save time now so your next tax season can be as painless as possible.
How do you prepare?
Mentally: After profiting hugely from an investment, giving up some of your profits can be painful, so you need to prepare your mind that you do not have any other choice.
Financially: You might be required to pay some capital gains tax on your investments, so make sure you have enough cash saved!
Records are important when it comes to investment and taxes. You need to start keeping all records of your taxable transactions. When you sell Bitcoin, make sure you keep a record of profits you must have made at that time.
Hire an Experienced Accountant
This is mostly overlooked by many, but consulting a professional accountant for advice and suggestion is very important.
Getting it Right
In recent years, many steps have been taken to provide clear guidance for digital asset taxation, but it will be difficult for taxation bodies to stay up to date with all these everyday developments.
Bitcoin is arguably different from any other things that have come before and it is constantly evolving, as a result of this, business owners will always be faced with taxation uncertainty, which will create more challenges for new innovations and adoption.
In conclusion, it is evident that tax authorities are being conscious of the fact that new Bitcoin taxation policies are necessary. It will be of advantage to both the government and investors if the policymakers can collaborate with industry experts, so as to understand the underlying principles and also the complexity of Bitcoin. Even though this has been put in place to some extent, more work is still needed to be done in this aspect. There should be sensible Bitcoin tax regulations.