No matter, thousands of crypto coins available in the market, but bitcoin has got the highest demand. There are several reasons behind it including its market cap and wide acceptance. So, whoever enters into the crypto market starts with bitcoin. Many people have many questions about bitcoin, its usage, application, advantages, disadvantages, etc.
Well, if you want to invest in bitcoin then knowing about the taxation laws can make your decision stronger. Here you will learn everything that you need to know about bitcoin taxation. Before that, let us understand a little about bitcoin and its legal status.
Bitcoin and its Legal Status
Bitcoin, being the first digital coin is now listed on exchanges for trading. Initially, there were no concrete laws or regulations about the most valued digital currency. With its wide range of features and applications, bitcoin is now used as a property in many countries.
In some countries, it is considered as a substitution to the traditional currency. Even it is banned in some countries due to decentralization and a bad reputation in the initial years. But it is not considered as a legal tender like the traditional fiat currencies.
However, it is used as one of the most lucrative investment vehicles for crypto traders. So, the government of some countries has taken this as a legitimate investment tool and imposed tax laws. Learn about the tax regulation of bitcoin that will help you to pay your taxes and how to manage them properly.
Tax Implication on Bitcoin
All over the world, the government of different economies has tried to come up with regulations and laws on bitcoin. Most of the countries have quite similar rules and regulations regarding the usage, storage, and investment of bitcoin. Particularly, the US IRS and authority bodies from other countries treat bitcoin as an asset. They made it also clear that bitcoin is not a currency issued by any central bank. As bitcoin is considered as an asset class in many countries, the tax implications are also made clear by the federal agency.
As per the agency, it clarifies that bitcoin investors need to report their income from earnings form investment in the crypto market. Failing which may liable to pay penalties, or in the worst-case criminal prosecutions.
So, it is mandatory to keep the report of all the bitcoin transactions. It does not matter how small is the amount of transactions whether it’s buying bitcoin, shopping goods or services with bitcoin, selling of, investing, trading, etc. Bitcoins are treated as property, so all the tax laws are applied to bitcoin transactions. If you are using bitcoin, then it is important to know which bitcoin transactions are taxable and which are not.
Taxable and Non-Taxable Transactions of Bitcoin
While considering bitcoin taxation laws, it is important to understand which transactions are taxable and those are non-taxable.
- Selling of bitcoin is taxable: Whether you bought, mined, or received bitcoins, but when you sell it to a third party is taxable.
- Shopping with bitcoin is taxable: In some countries, merchants also accept bitcoin payments. So shopping for your goods and services with bitcoin is taxable.
- Exchanging bitcoin with fiat currencies is taxable: If you are exchanging your bitcoin holdings with fiat currencies then you have to pay tax. However, the reverse is not taxable, you can exchange fiat currencies with bitcoin without taxes.
- Buying and holding are non-taxable: Buying bitcoin is not a taxable transaction unless you sell them.
Remember, when you are mining bitcoins and use it for transactions then you have to pay the taxes for your total earnings. But you have to pay taxes only on profits while investing in bitcoin.
Hopefully, you have gained insights into the implications of taxes on bitcoin. So, keep a record of all your bitcoin transactions so that you can prepare your tax report and file it in time. However, it is not easy to maintain the report at first because the value of bitcoin is volatile and it’s difficult to determine the exact value for maintaining the report. Consider visiting Crypto Group for investment strategies and guidance on investment. Finally, if you have any confusion regarding bitcoin taxation, ask here. And don’t forget to share your views on this.