The cryptocurrency market is booming once again. The market has risen to new highs, driving investors to buy bitcoins and take advantage of this opportunity.
Some people might even have reached their take-profit threshold by now, seeing that the price of cryptocurrencies has already made x10 returns in some cases. But taking profit also means that these investors will probably need to pay taxes when they sell their crypto.
However, finding out how to pay your crypto taxes doesn’t seem to be the easiest thing to do. The crypto industry is still in its nascent state, and governments around the world haven’t figured out how to regulate them. There’s no clear guideline, and tax regulations differ greatly from one country to another.
This article will attempt to help you out in this regard. This post should allow you to find out what the tax authority in your country expects from you when you sell or own cryptocurrencies.
How are cryptocurrencies regulated?
Unfortunately, there’s no single answer to this question. Some countries have clear tax regulations for cryptocurrencies. Others, on the other hand, leave them in a gray area, either completely ignoring them or to be left for interpretation.
Some countries have even chosen to outright ban them. This is a result of a general misconception that cryptocurrencies are mainly used for black market purchases, money laundering, or funding terrorism.
Do you need to pay taxes on crypto?
With that said, even in countries where crypto isn’t clearly regulated, you might be not exempt from paying tax upon realizing a profit. Make sure you inform yourself of the taxation of crypto in your country.
Failing to comply with tax requirements is punishable by law, and is considered a crime almost anywhere in the world. It would be unfortunate to receive a hefty fine just because you didn’t know how to declare and pay your cryptocurrency taxes.
How does my country tax cryptocurrencies?
Below, we take a look at some of the major countries in the world and how they tax cryptocurrencies.
In the USA, Bitcoin and other cryptocurrencies are considered as “property”. This means that they are taxed for capital gains, similar to company stocks and bonds. With that said, in some cases, crypto is subject to income tax as well.
Users are supposed to pay tax on capital gains from crypto in the event they:
Sell crypto for traditional money.
Use crypto to buy goods and services.
Trade cryptocurrencies for other assets of this type.
On the other hand, they are subject to income tax in the event they:
Receive gains from decentralized finance product yields
Receive crypto from airdrops
Generate profits from mining
Generate profits from staking
Receive crypto for services or work.
Worth noting is that cryptocurrency losses are also tax-deductible and can be used to reduce your overall tax bill as well.
This guide gets updated regularly and should help you fill in your crypto taxes if you reside in the US.
The EU doesn’t have a blanket regulative for taxing cryptocurrencies. Instead, every country has a different approach to this matter, with some of them being extremely tax-friendly.
There has been a push toward a common framework to tax bitcoin and similar cryptos, but for the time being, taxation is still up to individual countries.
Below are a few examples of such regulations by country:
Germany has one of the most favorable countries in Europe regarding cryptocurrencies. The reason behind this is because the German government encourages crypto holdings. Although bitcoin is taxable in Germany, as long as you keep your crypto for more than a year, you don’t have to pay taxes.
While not ideal for day traders, it’s one of the best countries for holders and investors.
While it may seem surprising, Portugal is one of the most tax-friendly countries when cryptocurrencies are concerned. As such, all crypto earnings in Portugal are tax-free. This includes selling, mining, and trading.
For more details on each country, visit this helpful guide.
The Russian government has had a complicated history with cryptocurrency regulations. While it doesn’t approve of the free use and trading of cryptocurrencies, it has recently passed a law where it requires crypto holders to declare all crypto income exceeding $8200/year.
Similar to Russia, the Chinese government doesn’t recognize cryptocurrencies as legal money. However, due to the large mining operations situated in the country, the government has decided to tax all cryptocurrency revenue on its soil, whether it comes from mining or trading.
Cryptocurrencies are still being regulated and this trend will continue until a global framework is reached. Most countries don’t have a clear set of guidelines concerning their taxation and investors are often left with too little information on how to declare and pay their taxes related to cryptocurrencies.
If you are a cryptocurrency owner, make sure you are up to date with your country’s latest tax regulations on the matter. This will help you avoid hefty fines and even jail sentences for tax evasion.