Are you an investor or trader in cryptocurrency? If so, then the answer is yes – you must file taxes for your crypto activity here in 2023.
Cryptocurrency is considered a form of digital asset that’s regulated by several government bodies in each country. This means that there are specific rules and regulations when it comes to filing taxes on crypto earnings, just like any other type of income. Depending on your country of residence, the rules and regulations may vary slightly.
Below we will go over, by country, the different regulation levels as well as best practices for filing taxes.
Let’s begin with the US. In the United States, cryptocurrency is deemed as property by the IRS (Internal Revenue Service). This means that any gains or profits made from trading cryptocurrencies need to be reported as capital gains.
These capital gains will be calculated based on the cost basis and fair market value when sold or exchanged within a given period, such as annually. When calculating your taxable income from cryptocurrency, it’s important to note that losses can be deducted from your total taxable income.
Not only do you need to report your crypto trading profits and losses on your taxes, but if you receive virtual currency payments in exchange for goods or services, they’re also considered taxable income according to the IRS. Additionally, if you use virtual currencies to purchase goods and services, those transactions may also be subject to taxation depending on local laws. As for any type of taxation requirements, always seek legal advice from an accountant or CPA.
Moving on to the United Kingdom, or rather the HMRC (Her Majesty’s Revenue and Customs). The UK views cryptocurrency as a “personal exchangeable asset”. This means that you have to pay Capital Gains Tax on any profits made from selling or exchanging cryptocurrencies. For example, The current Annual Exempt Amount or tax-free allowance is at 12,300 Great British pounds. In cases where the buying and selling of cryptocurrency results in profit, the HMRC might qualify it as trading and will then subject it to income tax.
In Canada, cryptocurrencies are regarded as commodities by the CRA (Canada Revenue Agency). Thus, they fall under similar legislation as other investment assets such as stocks and mutual funds.
As such, any profits made from trading cryptocurrencies must be reported and taxed accordingly when filing taxes each year. The CRA considers all cryptocurrency transactions taxable events and requires people to report them at fair market value in Canadian dollars even if they were conducted in another currency.
In Australia, cryptocurrencies are viewed as property by the ATO (Australian Taxation Office). Just like with most other countries, this means that any profits derived from trading crypto assets will be subject to capital gains tax at either 18% or 33%, depending upon your annual income brackets — regardless of if these exchanges occur within Australia or overseas.
In South Africa, SARS (South African Revenue Service) classifies cryptocurrencies as intangible assets so all profits generated through buying & selling these digital tokens need to be reported for taxation purposes — usually through capital gains tax which is applied at 18%.
Any losses can also be offset against future taxable capital gains so individuals should keep accurate records of their trades over time in order to make claiming back losses easier during their annual tax return process.
Lastly we arrive in India, where cryptocurrency taxation laws are still uncertain but changing rapidly due to recent developments by the country’s central bank — RBI (Reserve Bank of India). I
The government of India is working on legislation that will provide guidance regarding the taxation of crypto, including when it should be taxed, what kind of taxes apply, and what forms need to be filled out. Currently, Indian citizens are required to pay a capital gains tax when they make a profit from selling or using their cryptocurrencies.
Overall, there is no single type that purchases cryptocurrencies exclusively; rather, it’s a mix between different types. These types range from retail investors simply looking for quick returns all the way up through institutional level players looking for long term gains through investment strategies such as diversification across multiple asset classes including digital assets like bitcoin and Ethereum tokens among others. The timelines for investing vs trading (HODling) as well as risk profile are very different between the two. Consulting a professional on this manner is highly recommended.
Whatever type you may fall into though, it’s important that you understand all associated risks before investing your hard earned money into any asset class including digital assets such as cryptocurrencies and tokens alike.
We hope you found this information useful as we head into the tax season.
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