Bitcoin and cryptocurrency are scams. They are hallways for money laundering and tax evasion. Criminals use them. These are some of the sentiment you often hear from critics. While at it, most governments are allergic to this new form of currency but are taxing them anyway!
In fact the China don’t want anything to do with Bitcoin. On the other hand, the Indonesian government has a law in place banning cryptocurrencies as a legal tender. If you are got in possession of Bitcoin, you will serve a jail term.
In the US, exchanges are free to operate but it’s the same script. After all, Mark Carney said cryptocurrencies are not money. The SEC has a test in place that classify tokens or coins as securities liable for taxation whenever they meet certain conditions. Personally, I don’t think this should be a surprise.
Whenever there is a boom, expert the taxman to knock on the door. Pay the Caesar they say. But really, is all these tax hounding necessary? Or are governments making their presence felt in an industry that is still at a nascent stage.
Let’s look at some of the reasons why applying current fiat laws to tax cryptocurrencies is bonkers:
Fiat-Cryptocurrency Conversion Lags But Capital Tax Still Applies
We will start from the very first step. Cryptos are hot property and with all the psych, hunting for perfect basis is every investor’s objective.
It sounds easier than done. If you have bought coins before then you understand that in most exchanges, nothing is instantaneous when converting fiat to crypto.
There is a lag and considering coin volatility, prices might oscillate during the conversion period. If coin prices go up during that time, you have to pay capital tax gains. No? Makes sense? No!
Shirts are Off, You cannot Tax Losses
By late 2017, most high liquid coins as Ripple and IOTA were at record levels. Gains in multiples and the moon is where the bulls were heading. At the same period, ICOs-irrespective of their initial business objectives were booming.
There were investors who didn’t want to miss out and so they transferred all their life savings to some of these ventures. Unfortunately, 3 months later, there is widespread deflation in the crypto-sphere.
Everything is red and Bitcoin is down 70% from the mouthwatering $20K a piece back in December 2017. Now, even with all this, the IRS stipulates that all crypto transactions are taxable. Will the taxman demand returns from an investment that is already deep in the red?
Crypto Tax Experts are Hard Find
Unlike filling fiat returns, finding a cryptocurrency tax expert is an arduous task. Even when you do, their hourly rates are through the roof.
If you have shallow pockets, subscribing to their services won’t make sense economically. It will even be a tedious job to do especially if you often transact using crypto.
Finding gains while tracking basis prices all the way back from when you made your first entry is not only time consuming but tedious. You might need the services of a crypto tax experts who are scarce and you won’t expert the IRS to provide one. It’s all on you.
The Real Crypto Millionaires/Billionaires Tuck their Wealth in Tax Havens
It’s sad but true. Small timers are the ones who bear all the brunt of taxation.
In the meantime, the 5% of cryptocurrency have their cash stacks somewhere in the Cayman Islands out of reach from the IRS. These multi-millionaires and billionaires have tax experts or proxy companies who make prior arrangements facilitating this.
You Can Hide Cryptocurrency Transaction Activities
Of course if you can’t beat them then you can join them. But investors can keep their transaction under water by confining all their activity on wallets under their control. Alternatively, if they transact on foreign cryptocurrency exchanges and move money around, the tax man would have a hard time tracking them.
Irrefutably, paying taxes is a civic duty. However, considering the speed of technology evolution, tailoring laws to fit them should be a government priority. Private firms as CoinBase are helping out but their services are exclusive to their customers. Governments should re-look existing laws and derive proper laws to govern crypto taxation.
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