capital gains

Brazilians Who Held $1,000 in Crypto Last Year Must Report It on Tax Returns by End of May

30/05/2021 by Idelto Editor

Taxpayers in Brazil have only a couple of days left to file their annual tax returns. Investors who had more than 5,000 reals worth of cryptocurrency in 2020, a little less than $1,000, are obliged to report the funds on their income tax declarations this year. Brazilians who fail to do that on time face hefty fines.

Deadline for Tax Filing in Brazil Expires Midnight May 31

Brazilian citizens are required to file their 2021 income tax returns before June 1. This year, the deadline was extended by a month due to the coronavirus pandemic which took a heavy toll on South America’s largest economy. Failure to report revenues and tax obligations will result in fines starting at around $30 and going up to 20% on the tax due, Portal do Bitcoin warned readers recently.

Taxpayers who kept over 5,000 reals worth of coins in their wallets, or $960 at the current exchange rate, must report the crypto holdings to Receita Federal, the country’s internal revenue service. This year, the tax agency adopted dedicated codes on the assets and rights form for bitcoin (BTC) – 81, other cryptos such as ETH, BCH, XRP, and LTC – 82, and digital tokens – 89.

Although Brazilians are obliged to report the cryptos, not all of them will have to pay tax as it’s levied at capital gains exceeding the monthly exemption limit of 35,000 reals (approximately $6,700). Crypto profits above the threshold will be charged with capital gains tax according to a progressive scale, the news outlet elaborated.

Brazilians Who File Their Tax Declarations on Time Will Avoid Penalties

Submitting a declaration that’s not completely correct is the lesser evil than missing the deadline. Brazilians who have reported their assets on time are allowed to make corrections later, but those who fail to lodge their tax returns before June 1 will be facing penalties. And citizens that deliberately evade taxation can be fined up to 150% on the tax amount. Ana Paula Rabello, who specializes in crypto accounting, has been quoted saying:

A taxpayer who has not filed their declaration yet needs to remain calm and do nothing hastily to avoid the risk of paying more or less tax. What needs to be done now is to immediately start preparing the information.

The timely filing of the tax return is essential, Rabello stressed, or taxpayers will have issues with banks and the revenue service if they attempt to use unreported cryptocurrency. “Crypto investors must always remember that undeclared bitcoin cannot be used,” warned the accountant who has provided other tax tips in a free e-book published by Portal do Bitcoin, in which Rabello advises Brazilians how to report their crypto holdings on the 2021 income tax return.

What rules regulate cryptocurrency reporting and taxation in your country? Let us know in the comments section below.

Australian Tax Office to Prompt 400,000 Crypto Holders to Report Their Gains

29/05/2021 by Idelto Editor

Australia’s revenue service has reminded a growing number of crypto investors about their tax obligations. Rejecting the common misconception that crypto gains are only taxable when coins are cashed back into dollars, the tax office is going to prompt hundreds of thousands of taxpayers to report profits and losses from their cryptocurrency transactions.

Tax Office Targets Australians With Crypto-Related Obligations

Concerned about crypto investors evading taxes, the Australian Taxation Office (ATO) has set out to debunk the myth that cryptocurrency gains are only taxable when digital assets are converted into fiat money. People often think the digital coins are currencies but in reality, they are classified as assets, and gains from cryptocurrency trades are like gains from other investments, the tax authority explained.

ATO has estimated that 600,000 Australians have invested in cryptocurrency recently amid the surging popularity of crypto trading and rising market prices. The agency is now going to send warning letters to 100,000 taxpayers asking them to review their previously filed returns. Another 300,000 Aussies will be prompted to report their gains and losses from cryptocurrency deals as they lodge their 2021 tax return, Australian media reported.

The tax office also revealed that it’s closely monitoring the points where cryptocurrency interacts with the fiat system, helped by both the traditional financial sector and the crypto industry. The agency tracks the money back to the taxpayer using data matching profiles with cryptocurrency exchanges, according to ATO Assistant Commissioner Tim Loh who also told news.com.au:

There isn’t a game of hide and seek. We have got that information and all we are asking people to do is follow the rules. We know most Australians follow the rules.

Australian Capital Gains Tax Applies to NFTs as Well, ATO Warns

The ATO official further elaborated that the tax administration treats gains from cryptocurrency similarly to gains from shares, for example. The tax is due not only when an investor swaps cryptos for fiat money but also when one coin is exchanged for another and such transactions must be reported too. Furthermore, the Australian capital gains tax also applies to the disposal of non-fungible tokens (NFTs), Tim Loh remarked. At the same time, holding crypto funds as a long-term investment, for 12 months or more, entitles taxpayers to a discount.

A different rule applies when businesses or sole traders receive cryptocurrency for the goods and services they provide. Such payments will be taxed as income based on the value of the digital coins calculated in Australian dollars. Recognizing that the matter is quite complicated, the ATO is now focusing on helping Aussies to fill in their declarations correctly. Tim Loh advised them:

The best tip to nail your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address.

Loh’s comments also indicated that the Australian tax authority considers a failure to report obligations to be a bigger sin than a mistake on the declaration. “Failing to report on crypto-assets and not taking action when reminded will prompt penalties and potentially an audit,” the tax agent warned. Such penalties will be reduced significantly when taxpayers have corrected their returns.

What are your thoughts on the tax regulations for crypto investments in Australia? Let us know in the comments section below.

Everything You Need To Know About Bitcoin And Taxes

13/05/2021 by Idelto Editor

What are the basics that everyone should know about how their bitcoin is taxed in the United States?

Is the purchase of bitcoin taxable?
Do you pay taxes on the sale of bitcoin?
What transactions require me to report my Bitcoin?

These are questions nearly every Bitcoiner has asked themselves at some point in their Bitcoin journey. The topic of taxes and bitcoin can seem daunting at first but, once you have a solid understanding of the tax implications you may have around your bitcoin, you can make better decisions to lessen the burden of the good ol’ government. I have been working under one of the top Bitcoin tax experts in the country over the past year and have learned everything there is to know about Bitcoin and taxes. I can attest, knowing the regulations and laws around taxes on your Bitcoin can help make a big difference in how you utilize it.

Is There A Bitcoin Tax?

There is not actually anything called a “bitcoin tax” per se. When people refer to taxes and bitcoin they are referring to the capital gains taxes one must pay on profits made from selling or trading bitcoin. This is because, under the current view of the IRS (seen in IRS notice 2014-21), bitcoin is considered property. Per notice 2014-21 the IRS states “for federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” This really means the capital gains tax on Bitcoin is no different than the one referred to from profiting off a stock.

Capital gains have different rates you pay based on your income level as well as the holding period for the bitcoin.

Capital Gains Taxes: Short Term vs. Long Term

Capital gains taxes are split up into two groups, short term and long term, depending on how long you’ve held the asset.

Short-term capital gains tax is applied to profits from selling an asset you’ve held for less than a year. Short-term capital gains taxes are pegged to where your income places you in federal tax brackets, so you’ll pay them at the same rate you’d pay your ordinary income taxes.
Long-term capital gains tax is applied to assets held for more than a year. The long-term capital gains tax rates are 0%, 15% and 20%, depending on your income. These rates are typically much lower than the ordinary income tax rate, which is why HODLing is always going to be the most tax efficient strategy.

The pictures below represent the current long- and short-term capital gains tax rates in the United States.

Keep in mind, there are also varying state tax rates that get applied to capital gains. These can range anywhere from 3%–10%.

Capital Losses

If you sell bitcoin at a loss, meaning if the price you sold at is lower than your purchase price, you are entitled to a tax loss deduction, lowering your overall tax bill. You can deduct up to $3,000 per year from capital losses or use it to offset a portion of your capital gains. Any capital loss that exceeds $3,000 will roll forward to following years and can help offset future gains.

For example, If you lost $6,000 in 2020, you would deduct $3,000 from your 2020 income, reducing your tax bill and be able to deduct another $3,000 in 2021, or if you had gains in 2021 you could reduce your gains by that $3,000.

What transactions are taxable?

Understanding what transactions are taxable is very important for planning ahead and making smart decisions about how to best utilize your bitcoin. Let’s break down what is and is not a taxable event.

Taxable: Anytime you trade, spend or sell your bitcoin, you are triggering a taxable event which must be reported to the IRS. You are also required to report any bitcoin mining as taxable income.

Non-Taxable: HODLing, purchases of bitcoin with fiat, sending bitcoin from one wallet or exchange to another, using bitcoin as collateral are all non-taxable events.

What is the best tax method?

I recommend using FIFO (first-in first-out) to most of if not all the clients I work with. This essentially means that the first coins you purchased will be the cost basis and holding period for the coins you decide to sell, spend or trade. FIFO is always favorable for Bitcoiners because it allows you to qualify for long-term capital gains rates easier.

How are capital gains tracked for bitcoin?

Tracking capital gains and losses can be quite tricky depending on how much activity you have had with your bitcoin. Moving and storing bitcoin on different wallets and exchanges can lead to quite the headache when trying to figure out the cost basis and holding period for the coins you decide to trade, spend or sell. Luckily, there is software out there like Cointracking.info (my personal favorite) that allows you to easily import your data and does the calculations for you. Once you have calculated your gains/losses either via a software or by doing it yourself, you then report the numbers on form 8949. These figures flow through to schedule D on form 1040.

My suggestions:

My biggest suggestion to any client is to keep track of everything in a notebook and try to use only a few fiat on-ramps and a few secure hardware or multisig wallets. This will make the whole process of calculating your gains/losses much easier. I also recommend not selling your bitcoin until it becomes the unit of account, however, I understand everyone has expenses and reasons to sell along the way. A good way to work around this is by putting your bitcoin up as collateral with a company like Unchained Capital. Just as long as you aren’t selling your bitcoin to buy an Aston Martin.

Hopefully, this article has given you a better idea of how taxes might affect you, so you can make better decisions and minimize your payments to the greedy government. If you need help navigating your bitcoin taxes or just want to ask questions, feel free to shoot me a Twitter DM (located on author profile page) anytime.

This is a guest post by Joe Howe. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

How To Offset Gains Taxes With Bitcoin Donations

12/05/2021 by Idelto Editor

This tax season, it may be worthwhile to consider making a bitcoin donation to reduce one’s taxes through philanthropy.

This year is on track to be a record year for bitcoin donations as more donors continue to learn about the tax benefits of donating bitcoin instead of fiat. Why do so many high-networth individuals make large gifts of equities or bitcoin instead of donating in fiat? It’s usually all about taxes. If you donate bitcoin, which is considered property by the IRS for tax purposes, then donating appreciated bitcoin is likely one of the most tax efficient ways to support your favorite bitcoin-friendly charity. Why? Think about it like donating pre-tax dollars. When you donate bitcoin directly to a 501c3 nonprofit, you (the donor) do not owe capital gains taxes and can write off the fair market value of the donation. If you were to sell your bitcoin and then donate afterward, you’d be paying 30% or more in taxes first and then donating less as a result. Plus your write-off would be lower as well since the donation is smaller. Since the nonprofits are a 501c3, they also don’t have any tax liability on the gifts and are better off as well.

For those of you who want to take it one step further, there is also a tax arbitrage opportunity since there is no wash rule related to crypto donations. This only helps you if you’re already donating fiat but have appreciated bitcoin you’re HODLing. You might need to read this next paragraph more than once because this is a little more complex.

So, say you’re already donating $10,000 per year to your favorite charity using your credit card. If you replace that $10,000 donation with an equivalent bitcoin donation, and use the fiat to purchase back your bitcoin position, you’ve now erased your capital gains on the previous positions and raised your cost-basis. So by making that same gift in bitcoin each year and then repurchasing that same amount using the fiat you would have donated, you’re much better off.

Unfortunately, most Bitcoiners don’t know about the tax benefits of donating appreciated bitcoin, but if you ask your financial advisor or accountant, they’ll likely tell you to donate your most highly appreciated assets (like bitcoin) first. Until recently, stock donations weren’t easy so this was usually a strategy reserved for the mega wealthy. With bitcoin being easier to transfer and hundreds of nonprofits accepting bitcoin donations directly, it’s becoming more common for the average person to support their cause in a more tax efficient way by donating bitcoin.

To help raise awareness and promote bitcoin donations, The Giving Block has launched a Tax Season campaign that aims to educate users on the tax benefits of donating appreciated bitcoin. Although I’m biased toward making a donation, there are a handful of ways to reduce your bitcoin taxes beyond making a donation. Other methods include

Using tax software to automate tracking your transactions
Working with tax professionals who do the heavy lifting for you
Moving to a city like Miami that is in a state that doesn’t have personal income taxes (plus they have a bitcoin-friendly mayor!)

So whether you’re moving to Miami to get a tan and save on taxes or donating bitcoin to a charity, we hope you take the time to plan ahead or consult a tax professional to optimize your HODL plan so you can stack as many sats as possible.

This article does is not tax advice nor financial advice – all parties should do their own research when making any financial decisions.

This is a guest post by Alex Wilson. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Hungary to Cut Tax on Crypto Profits in Half, Down to 15%

12/05/2021 by Idelto Editor

The government in Budapest has put forward measures aimed at streamlining taxation and reducing the tax burden on businesses and citizens. As part of the package, Hungary plans to cut the tax levied on capital gains from cryptocurrency transactions, expecting to increase budget revenue with the move.

Tax Cut to Attract Cryptocurrency Traders to Hungary

Hungarians now pay 30.5% on profits made from cryptocurrency transactions, but their government wants to reduce the tax rate to 15%. The primary goal is to minimize tax evasion, but the lower tax rate could also attract more crypto traders and investors to country. The Hungarian government believes this will generate “several billion forints” in additional budget receipts.

The crypto tax cut was announced in a video address posted by Hungary’s Finance Minister Mihály Varga on Facebook, along with other steps to kick start the country’s economy following the Covid-19 crisis. The measures will soon be proposed to Hungarian lawmakers. If the new legislation is approved by the parliament, the changes will take effect in 2022.

Budapest Takes Steps to Relaunch Economy After Pandemic

Varga also revealed that the government wants to reduce the payroll tax to 15% from next July, Daily News Hungary reported. It currently stands at 15.5% but employers are also obliged to contribute a fixed share of payroll, 1.5%, to a training fund. The vocational training contribution will be added to the payroll tax, the minister explained, and then the rate will be dropped by two percentage points. The adjustment should save businesses 250 billion forints annually (around €698 million).

The new tax policies could also affect 70,000 sole proprietors in Hungary as the legislation would make it easier for them to opt for flat-rate or lump-sum tax forms. Under the new eligibility thresholds – ten times the annual minimum wage (50 times for retail activities) – they will get an exemption from their personal income tax of up to a half of the minimum wage.

Another important proposal is to do away with the sectoral tax that capital fund managers and stock exchanges are required to pay now. Starting from next year, the tax cut is expected to support market participants who are actively involved in the efforts to relaunch the Hungarian economy after the pandemic. Another step aiming to reduce overhead costs is to allow energy suppliers to deduct losses from their pre-tax profit for the next five tax years.

What’s your opinion on the proposed tax cuts in Hungary? Share your views on the subject in the comments section below.