With the rise of cryptocurrencies over the past decade, the question of tax comes to mind. Benjamin Franklin said “Nothing is inevitable in life except death and taxes”. This quote still highlights the universal truth that no one and nothing can avoid taxes therefore cryptocurrency isn’t immune to it. When crypto is sold for profit, capital gains should be taxed as they would be on other assets. Some countries have adopted favorable tax policies towards cryptocurrencies and some have implemented strict regulations. Within this article I will discuss the ins and outs, the important things you need to know when starting your journey with crypto.
Understanding The Basics
It is imperative to remember that any crypto transactions above the threshold £12,300 tax-free allowance, you’ll need to pay either 10% or 20% or for above you’ll pay between 20% to 45%, this can be calculated using the HMRC Crypto Tax Calculator. This shouldn’t be avoided as this can be classed as tax avoidance and fraud. Although there are some types of Crypto transaction types that are tax free in the UK such as:
- Buying Crypto with GBP.
- HODLing crypto.
- Transferring crypto between your own wallets.
- Donating crypto to charity.
- Gifting crypto to your spouse.
While understanding the basics of crypto its important to pay your taxes, this can be beneficial if at any point in the future you’re victim to a scam and are in need of crypto recovery from services such as government, Federal Trade Commission or Cybercrime units taxes must be paid and up to date or you can be done for tax aviation that could lead to a criminal charge or a larger payout. This could be the same for alternative approaches to crypto scam recovery such as reaching out to investment fraud lawyers or independent recovery firms.
Keep Up to Date
It’s important to keep in mind that policies and regulations change all the time, therefore, keeping up to date on the latest information regarding tax regulations related to cryptocurrency is important. For example UK crypto tax advisors welcome proposed changes to DeFi Lending aimed to reduce burdens on crypto users. As the crypto tax landscape is always evolving , it is essential to stay up to date to protect yourself from any fraudulent or scamming new developments. There are methods of accurately reporting your crypto taxes, and understanding of the types of transactions and how they are taxed is essential, therefore for a wide understanding consulting with a taxing professional when filing your return. This avoids any mistakes and ensures your understanding for the future if anything changes.
Tracking your cryptocurrency transactions is very important as it helps when estimating your tax liability. With crypto being at a high, the Internal Revenue Service (IRS) are paying close attention to crypto transactions, therefore it’s more important than ever to apply the knowledge you’ve gained from working professionals in order to stay compliant. There are other alternative tools that can be used such as online calculators, NFT Tax Calculators that can support and keep you up to date on your tax liability,