Tax implications of cryptocurrency trading: Prevailing tax laws, and how to clear tax regulators when liquidating your cryptos

[natethesnake]

Hi everyone,

I'm in the midst of planning on my exit strategy, and have concerns on how to clear tax requirements with the regulators in my country. So far, no one has been able to advise how to go about it, especially when it comes to providing documentation. 

 

Has anyone gone through the process and can shed some light in this area?

[Chunks]

what country ?

[natethesnake]

I'm currently based out of Singapore/Malaysia.

[Chunks]

can't help sorry, hopefully someone else here can

[Trippy]

I can help with Australia. For investment purposes there are no capital gains on investments provided the cost of the crypto you own is under $10,000. If you are mining cryptos or running a business off cryptos typical business tax/ income tax laws apply.

It seems they have quite a laissez-faire attitude to the cryptos in investment terms.

https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia---specifically-bitcoin/

Note: Seek your own tax advice to be sure!!

Edited May 29, 2017 by Trippy
Wording

[darkcry]

What about the United States?

[ThomasV]

In the USA it's pretty simple.  All Cypto's are treated as property.  There is no capital gain tax.  Just a flat 28% on the appreciation when recognized. The best way to think about it is like dealing in art.   The most positive is if you become wealthy, it's not treated as income and a lower tax rate. Also has other benefits.

[ZIGXRP]

I'm in Canada and I believe it's your typical capital tax gain rules apply. 

If XRP goes where I think it can, I'll have no interest in trying to skirt tax laws. I will happily pay my taxes with full disclosure. 

That said though, I will dip my toes in first with selling/reporting just a fraction of holdings to see how that process goes, and not try to get out in one bang. 

My bigger exit will probably be a few short days after my bank starts offering XRP accounts. 

[Guest Dizer]

42 minutes ago, tvm67 said:

Just a flat 28% on the appreciation when recognized. 

28%!! That's highway robbery! Is that for all states, or does it vary state by state? How do they know what the appreciation is if there are no records of what your original cost was? You can make up any number. And finally, How will the IRS know you have this money in the first place? Do they monitor the wire transfers from crypto exchange to your bank account?

[Mercury]

28%!! That's highway robbery! Is that for all states, or does it vary state by state? How do they know what the appreciation is if there are no records of what your original cost was? You can make up any number. And finally, How will the IRS know you have this money in the first place? Do they monitor the wire transfers from crypto exchange to your bank account?

Remember all banks report large deposits and monitor fund transfers from certain accounts. If a certain exchange is monitored or not is not something I would risk. Either way if the local tax officials were wondering how a sizeable amount of funds magically arrived in your bank account be prepared to answer a few questions.

[Mercury]

I'm in Canada and I believe it's your typical capital tax gain rules apply. 
If XRP goes where I think it can, I'll have no interest in trying to skirt tax laws. I will happily pay my taxes with full disclosure. 
That said though, I will dip my toes in first with selling/reporting just a fraction of holdings to see how that process goes, and not try to get out in one bang. 
My bigger exit will probably be a few short days after my bank starts offering XRP accounts. 

The rules are based on either the barter transaction system or capital gains in Canada. It depends on how value is realized. Also Canadians have a couple advantages over our US cousins, 1) our business taxes are much lower, if you want to incorporate a holding company (for really high values), 2) you do have to report but not be taxed on foreign holdings ( there might be taxes by said foreign authorities though, something to keep in mind if you happen to hold dual citizenship for instance). As in all things consult a specialist

[Kakoyla]

2 hours ago, tvm67 said:

In the USA it's pretty simple.  All Cypto's are treated as property.  There is no capital gain tax.  Just a flat 28% on the appreciation when recognized. The best way to think about it is like dealing in art.   The most positive is if you become wealthy, it's not treated as income and a lower tax rate. Also has other benefits.

Do you have a source for this? 

[svx_420]

In the USA it's pretty simple.  All Cypto's are treated as property.  There is no capital gain tax.  Just a flat 28% on the appreciation when recognized. The best way to think about it is like dealing in art.   The most positive is if you become wealthy, it's not treated as income and a lower tax rate. Also has other benefits.

in USA , crypto is treated as an asset just like stocks and taxed similarly. (Capital gains tax). it can vary, but short term capital gains (365 days or less) are taxed as regular income and long term capital gains (366 days or more) are slightly less, maybe by 10%. depending on your income etc. some
states may be different as well. Sorry, I dont know about Singapore though.



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[cmbartley]

6 hours ago, natethesnake said:

I'm currently based out of Singapore/Malaysia.

Hire a CPA you trust. First of all because they should have more familiarity with the tax code than you and secondly because if something is an error you can place the responsibility on them.

Not sure about your country but as others have said, Bitcoin in the US is treated as an asset and therefore is subject to state and federsl capital gains. Presumably other cryptos are treated similarly but this has not been specifically stated by the IRS. One of the reasons to buy and hold crypto rather than to trade against Fiat unless you're doing this as a living, is to pay long term rather than short term capital gains taxes (long term taxes are lower). One aspect of Warren Buffet's buy and hold strategy that no one ever talks about is that he avoid Ms paying massive amount of taxes by not cashing out. Those would be taxes are effectively reinvested in his investments. 

Crypto may be a bit different as you can "cashout" to other cryptos without paying taxes, but once you cash out to Fiat you owe the government. No way around it. Don't buy a token unless you plan to hold it for over a year. 

[natethesnake]

9 hours ago, cmbartley said:

Hire a CPA you trust. First of all because they should have more familiarity with the tax code than you and secondly because if something is an error you can place the responsibility on them.

Not sure about your country but as others have said, Bitcoin in the US is treated as an asset and therefore is subject to state and federsl capital gains. Presumably other cryptos are treated similarly but this has not been specifically stated by the IRS. One of the reasons to buy and hold crypto rather than to trade against Fiat unless you're doing this as a living, is to pay long term rather than short term capital gains taxes (long term taxes are lower). One aspect of Warren Buffet's buy and hold strategy that no one ever talks about is that he avoid Ms paying massive amount of taxes by not cashing out. Those would be taxes are effectively reinvested in his investments. 

Crypto may be a bit different as you can "cashout" to other cryptos without paying taxes, but once you cash out to Fiat you owe the government. No way around it. Don't buy a token unless you plan to hold it for over a year. 

The missus is a CPA, and even she is baffled and unsure how we're going to quantify our gains given the volatility of the asset. Lol! Plus, in my country's tax code, the only item I can find where capital gains are recognised as taxable is real estate. There's no specific mention of gains from forex (closest comparison I can think of) or other asset classes.

Seeing how many of us use GateHub's services to store our XRPs, can the guys at GateHub be kind enough to engage a tax expert to at least advise of the UK tax implications should users choose to repatriate funds from GateHub back to our own countries? @enej Where the need arises, we may even need GateHub to produce documentation that the funds we have repatriated have been cleared by regulators/tax authorities in the UK before being wired across.