Does Bitcoin Affect Your Taxes?
Are you wondering whether Bitcoin affects your taxes? If so, here’s what you should know about Bitcoin and taxation.
In 2017, Bitcoin had a short-lived surge before plummeting and rising again during the COVID-19 pandemic, particularly in 2020. Later, the prominent cryptocurrency dropped to end the year at around $30,000 per coin. The increasing Bitcoin value has prompted many investors to purchase it over the years. At the same time, investors that held their cryptocurrency took advantage of the high prices during the pandemic to sell it and reap significant profits. The increasing attention that Bitcoin has recently received from investors has prompted authorities to clarify how they tax cryptocurrency.
Bitcoin Taxation Varies Among Countries
The Internal Revenue Service (IRS) issued guidance stating that the US authorities will treat virtual currencies like Bitcoin as property for tax purposes. Any gains or losses from selling or exchanging cryptocurrency will be subject to capital gains taxes. Also, the IRS stated that cryptocurrency miners must report any income they receive from mining activity as gross income.
The taxman also requires cryptocurrency exchanges to report suspicious activity to the US Financial Crimes Enforcement Network (FinCEN).
In the UK, Her Majesty’s Revenue and Customs (HMRC) considers Bitcoin and other cryptocurrencies as taxable commodities rather than currencies. Any gains or losses from buying, selling, or exchanging cryptocurrency will be subject to capital gains taxes.
The Australian Taxation Office (ATO) treats Bitcoin and other cryptocurrencies as taxable property in Australia. Any gains or losses from buying, selling, or exchanging cryptocurrency are subject to capital gains taxes.
In Canada, the Canada Revenue Agency (CRA) treats Bitcoin and other cryptocurrencies as taxable commodities. Any gains or losses from buying, selling, or exchanging cryptocurrency will be subject to capital gains taxes. Also, the CRA requires cryptocurrency exchanges to report suspicious activity to FINTRAC.
Paying Taxes on Bitcoin
Many people want to learn how to pay taxes when trading or investing in Bitcoin. Luckily, platforms like BitIQ help you to trade in bitcoins. But if you sell or exchange Bitcoin, you must calculate your capital gains or losses and report it on your tax return. When mining Bitcoin, you must report any income you receive from mining activity as gross income.
Also, most jurisdictions require cryptocurrency exchanges to report suspicious activity to the relevant authorities. That means the government may have some information about your transactions if you use a crypto exchange.
Tips for Paying Taxes on Bitcoin
Perhaps, you still need help paying taxes on Bitcoin. In that case, here are practical tips to help you when paying taxes on Bitcoin:
• Keep records of all your Bitcoin transactions, including the date, time, amount, and value in USD.
• Use reputable cryptocurrency tax software to calculate your capital gains or losses from buying, selling, or exchanging Bitcoin.
• If you mine Bitcoin, keep records of all your income from mining activity, including the date, time, amount, and value in USD.
• When using a cryptocurrency exchange, be aware that they may report any suspicious activity to the authorities.
• Pay attention to changes in taxation policy relating to Bitcoin and other cryptocurrencies in your jurisdiction.
• Seek professional help from a tax advisor or a relevant crypto expert if you encounter challenges when paying taxes on Bitcoin.
Follow these tips, and you won’t have problems with the taxman. Nevertheless, you can seek professional assistance if you have difficulties filing tax returns after trading or investing in Bitcoin.
