The rise of Bitcoin in the market is something that most people cannot fathom and has spread like a virus. No one knew that cryptocurrencies would be where they are today, not even the current crop of investors that we have today.
If you want to know the impact that bitcoin has created in the market then be informed that in January 2017 it was valued at less than $1000. Towards the end the year the price had shot to around $25000. The value may have gone down in the past few months; it still stands at around $10000.
Income attracts Taxation
With the recent rise of cryptocurrencies in the world, they have become under the radar of most departments in many countries especially the income tax departments. This guide will look at how bitcoin earnings are taxed in the major countries such as the US, UK and Australia.
The United States
Taxation comes into play when you buy, sell or exchange your Bitcoins or when you use them to purchase something. The following are few points that you can remember:
- When you trade Bitcoins and earn profits, that is actually considered as capital gain and will be taxed and this depends on the tax bracket you fall in.
- When you actually exchange bitcoins for other cryptos or probably convert them into USD and then make a profit, it is considered as a capital gain.
- Another issue that can make you be under the tax radar is when you use your bitcoin to buy something and then you benefit from that transaction due to the increase in the value of the currency the you stand a high chance of being taxed.
- When you are a bitcoin miner and receive some payments in exchange for your services then that is considered to a regular income that must be taxed.
For you to file your tax returns, you will need to have all your transactions for the last financial year. This data that has all your transaction can be got from your wallet provider.
If you want to minimize the tax burden crypto’s then the only thing you need to do is to hold them for maybe a year. You can also sell the cryptocurrencies when they are still on high demand and then make lots of profits and subject some portion to taxes.
The United Kingdom
The following are points to be considered:
- Bitcoin mining is considered as a trading activity and the profit made is considered as part of income and is taxed according to the tax bracket that one belongs to.
- In case you are an investor in bitcoins, you need to hold them for some period of time then sell for profit then it is considered an investment activity and the profit made is considered either for short-term or long-term gain.
- A supplier of goods and services who receives bitcoin as payment may have to pay VAT depending on the value of the cryptocurrencies received.
- When you receive cryptocurrency more than £6,000, it will be taxed according to the laws.
The Australian government has a detailed guide for the cryptocurrency taxation.
- When you are a person that uses Bitcoins for personal transaction, then you will not pay the tax on the capital gain resulting from it as long as the value if the bitcoin is less than $10000
- When you invest in bitcoin and then sell them for profit, the capital gains taxes do apply
- When you mine bitcoins, the income you earn from selling your bitcoin is considered as part of your income.
- If a person receives bitcoin as payment for the products he sells then that will be treated as regular income.
- If a person buys and sells bitcoin as part of an exchange service, the profits earned are included in the assessable income.
When it comes to paying taxes, it is in order for one to be proactive rather than be reactive. You must keep a record of all your cryptocurrency transactions then disclosing while filing your returns.