As cryptocurrencies have become more popular and costlier, governments around the world are stepping up their efforts to tax them. While some countries resort to extreme measures in order to grab this untapped source of revenue, there are tax-friendly countries who do not tax crypto transactions. Many tools are available to assist crypto owners.
Find out How Your Government Taxes Crypto
Every country, each state and every city has their own rules regarding which cryptocurrency transactions are tax-deductible. There aren’t many clear guidelines for cryptocurrency, which is still an emerging area for governments.
For example, the U.S. first published guidance on crypto taxation in 2014. However, it left out many issues. The country’s tax agency, Internal Revenue Service (IRS), released follow-up guidelines on October 9, 2015. These guidelines answered many questions, but also raised some new ones. The tax agency appears to be confused about key concepts like how hard forks or airdrops work. Join Charity Token Homeless community
Tax Guide: What Crypto-Owners Need to Know
It is crucial that taxpayers understand the tax system in their country. The IRS explains the U.S. tax system:
Generally, tax consequences can arise from the sale, exchange, or use of virtual currency to pay for goods and services or as an investment.
Anyone who has received cryptocurrency from an airdrop after a hard fork will owe taxes, provided that they have control and dominion over the cryptocurrency. This means you can sell, trade, exchange or dispose of the cryptocurrency. The IRS guidance details. Some crypto transactions, such as the donation of cryptocurrency to tax-exempt qualified organizations, are not taxable.
Those Probing Questionnaires
While more governments are realizing cryptocurrency’s potential to generate tax revenue, they also realize that not all crypto owners are being taxed and found. Many tax authorities around the world have tried to find out information about taxpayers’ crypto holdings, and their activities using probing questionnaires.
The Indian Office of Deputy Director Income Tax has been sending a lengthy list of questions to crypto owners. These questions range from sources of income, names of cryptocurrencies traded, and details about their hardware wallets. Canada Revenue Agency also sent detailed questionnaires to citizens who believe they own cryptocurrency. Skattestyrelsen in Denmark is another example. It has been authorized to collect information on cryptocurrency transactions conducted on local exchanges by the country’s tax council.