As the altcoin market rebounds with the indefinite cancellation of Bitcoin’s controversial SegWit2x update, many of us in the crypto community are “in the green”—our portfolios have started to see gains across the board.
And while these gains naturally have us excited in the short-term, they also have the mid- and long-term gears spinning of tax institutions like the United States’ Internal Revenue Service (IRS) and the United Kingdom’s HM Revenue and Customs (HMRC).
Indeed, tax bodies the world over are looking at cryptocurrencies closer than ever before. The implications are huge for crypto users.
Now, let’s get your finger on the pulse of the current dominant regulatory trends.
For Now, Crypto As “Property” Dominates
As far as regulatory frameworks go, some of the most major and influential nations in the world legally consider cryptocurrencies to be “property”—not currencies per se.
This includes nations like the United States, the UK, Germany, Israel, Brazil, and so forth.
This “property” dynamic necessitates that crypto investments in these nations are hit with capital gains taxes. In the United States for instance, crypto users with either pay short-term or long-term capital gains taxes—somewhere between 0% and 25% depending on the circumstances.
But there are a range of tax classifications being used for crypto in the world right now.
For instance, the Netherlands considers bitcoins to be “bartering” instruments. Switzerland considers them foreign currencies. Italy doesn’t tax crypto at all.
A New Asset Class Altogether? CME Chairman Thinks So
The U.S. and U.K. may legally consider crypto to be property, but the Chicago Merchant Exchange—among the largest futures exchanges in the world—thinks cryptocurrencies are clearly an entirely new asset class like we’ve never seen before.
The CME’s notable distinction here could become more popular in the years ahead as taxation in the space matures.
In recent comments to Reuters, CME Chairman Leo Melamed was optimistic:
[This is] a very important step for bitcoin’s history … We will regulate, make bitcoin not wild, nor wilder. We’ll tame it into a regular type instrument of trade with rules.
Angel on One Shoulder, Devil on The Next: Crypto Taxes Under Debate in U.S.
The U.S. Congress currently has two crypto taxation bills under review: one lenient, one beyond strict.
And while there’s no indication these bills are going anywhere anytime soon, it’s best to know their general contours.
The lenient bill is Cryptocurrency Fairness in Taxation Act (CFTA), which would exempt crypto transactions beneath $600 from taxation.
On the other hand, there’s the much stricter Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017. Some worry this bill would impose institutional-grade reporting burdens on individual crypto users.
The good news is that it’s made zero traction in the U.S. legislature—for now.
The U.K. Situation Among the Most Lenient
U.K. crypto users currently enjoy one of the most lenient and open-minded crypto taxation burdens in the entire world.
The U.K. government provides crypto enthusiasts in the nation with an exemption of up to £11,100 for capital gains taxation on crypto profits.
This is significantly higher, of course, than the United States’ potentially forthcoming $600 tax exemption.
Australia Nixes Double Tax
The Government of Australia eliminated the “double tax” with a bill that’s been negatively affecting Australian crypto users hitherto.
Before, these users were taxed both in purchasing crypto and in spending it, according previous goods and services (GST) tax guidelines in the nation.
But the Australian legislature has now spoken, and bitcoins and other cryptocurrencies will now be exempt from the second GST taxation in the nation.
This development shows that many nations are approaching crypto regulations with a forward-thinking attitude and other governments will surely follow Australia’s lead in getting the laws “right,” as it were, for everyday users.
Nations Looking at National Cryptocurrencies for Taxation
Russia is officially moving forward with the creation of a national “cryptoruble,” and there are rumors that other influential nations like China and Sweden are currently looking at creating their own national cryptocurrencies, too.
But many pundits in the space believe these nations are trying to “intercept” the adoption of cryptocurrencies—getting in early enough themselves that they can put these innovative technologies to their own tax devices.
Clearly, nations like Russia and China can capitalize on crypto taxation more effectively if their own state-sponsored digital currencies are running the show.
IRS Going Detective on The Blockchain
Watch your back … because the IRS is watching your blockchain.
New reports indicate the U.S. tax agency is utilizing Chainanalysis software to discover U.S. citizens who are not reporting, or under-reporting, their crypto investments.
So while cryptocurrencies may be an anarchic dream for many, U.S. users are going to need to be more diligent in reporting their holdings lest they run afoul of the taxman.
How Should Crypto Users Proceed?
The team here at Coinbureau advises you to follow all the laws that govern your jurisdiction. Accounting for your crypto trades now will save you from ever having to worry about legal troubles down the road.
We recommend a crypto accounting website like cointracking.info. It’ll help keep track of all your trades in an organized manner.
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