It seems like whichever direction you turn to, people are talking about the Bitcoins, Ripple, Ethereum, and other Cryptocurrencies. So, what is Cryptocurrency?
As per Wikipedia’s definition, Cryptocurrencies are the digital assets that can be used to exchange for goods and services. Cryptocurrency uses blockchain technology, hence, they are the most secure way for transactions.
The Cryptocurrency (Bitcoin) first surfaced in 2009 and since then it has never looked back. And after its golden year, 2017, where the evaluation reached almost $20,000. Traders and investors from all over the world become more interested in Cryptocurrency.
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Even The U.S government passed a law that states that now even the Cryptocurrency traders are liable to pay income taxes. There are only a few people who know about the proper ways to file a Tax document related to the Crypto profits.
In this article, we will discuss the things you should know about Cryptocurrency Tax filing.
- How does CGT apply to the Cryptocurrency?
At the time of paying the Taxes, Cryptocurrency also acts like an asset. If you have a gain on Cryptocurrency trade that means that you are liable to pay income tax based on your income bracket. These taxes may vary with the type of investment you have made. If you have made a long-term investment (more than a year) then you have to pay tax on only half of your profit. And if it is a short-term investment then it will be considered as ordinary income.
- What is the “Personal Use” Exemption?
We all know that the personal used assets are exempted from the tax. Let’s take your car for example. The car is a personal asset that you use for yourself and you have no intention of making a profit out of it. Hence, you will not be taxed. The same thing can be said for the Cryptocurrencies.
If you have got hold of Cryptocurrency merely in exchange of goods. And you have no intention of keeping them in the trade market for profit. You just liquified it for your personal use. In that case, you will not be charged any Taxes.
- What records do you need to keep?
It is very important to have all the relevant data prepared beforehand so that at the time of filing taxes, you will not face any kind of problem.
Here are some of the things that you need to keep a record of.
- You must take care of every data related purchase and sell you have made.
- Make sure the value of every transaction is clear.
- The identity of third parties should be clear. (For example, address of the cryptocurrencies)
- And finally, note down the nature and the purpose of the transaction.
What are the Tax Implications for “Mining”?
If you are among those traders who “Mine” Cryptocurrency, then it will be considered as self-employed services and will be taxed accordingly. However, if you are mining for an employee then that will be considered as ordinary income.
Note that there are expenses like electricity cost and equipment cost. So you should calculate your profit after deducting these kinds of expenditure.
No matter how you are making a profit, if there is a profit, you are liable to pay taxes. But that does not mean that you cannot take advantage of the small detail to reduce your taxes. Once you have a clear understanding of what kind of income you are making, you will be able to pay taxes more efficiently.