From America to the United Kingdom and from Russia to Australia, cryptocurrency taxation in major bitcoin strongholds is complicated. Contradictory or non-existent laws, excessive red tape, and maddeningly vague guidelines have conspired to make the tax-paying process more arduous than it need be. Now, a number of advocates are pushing for simplified crypto tax guidelines.
Death, Taxes, and Cryptocurrency
It was Benjamin Franklin who composed the oft-quoted aphorism that “in this world nothing can be said to be certain, except death and taxes.” In the world of cryptocurrency, the inevitability of those affairs is also accompanied by resignation to their being inevitably complicated. As it stands, most cryptocurrency holders have more pressing concerns than bequeathing their digital estate – like trying to work out how much tax they are due on their previous year’s crypto trading.
Across North America, there is a growing consensus that bitcoin taxes need to be simplified. Some segments of the cryptoconomy are drowning under excessive red tape – think of the much maligned New York Bitlicense, which has left Bittrex seething and which Andrew Yang has vowed to reform, describing it as having a “chilling effect on the US digital asset market.” In other realms of the cryptosphere, however, not least taxation, the reverse is arguably true, where opaque guidelines have left citizens in the dark.
Kevin Hobbs is the CEO of Vanbex, a Canadian blockchain services company that specializes in cryptocurrency taxation. He told news.Bitcoin.com: “Tax agencies, like other government agencies, need to provide proper guidance for how to account for cryptocurrency holdings and the trading or transferring of those assets along with a proper explanation for the do’s and don’ts that go along with that.”
The Murky Waters of Crypto Taxation
Should he achieve the unthinkable and become U.S. president, Andrew Yang has promised a raft of measures to streamline the cryptocurrency industry including a commitment to “Clarify the tax implications of owning, selling, and trading digital assets.” But even if Yang has his way, there will be significant work to be done in simplifying the process for cryptocurrency users across North America and beyond.
Government: You owe us money. It’s called taxes.
Me: How much do I owe?
Gov’t: You have to figure that out.
Me: I just pay what I want?
Gov’t: Oh, no we know exactly how much you owe. But you have to guess that number too.
Me: What if I get it wrong?
Gov’t: You go to prison
— jordan (@jordan_stratton) April 16, 2019
Earlier this month, a letter signed by 21 members of Congress spoke of the “unacceptable” ambiguity when it comes to reporting crypto taxes, noting the solitary acknowledgement of bitcoin made by the IRS since the cryptocurrency’s inception. “Guidance is long overdue and essential to proper reporting of these emerging assets. The bipartisan support this letter has received should send a clear message to the IRS that clear guidelines for reporting virtual currency are necessary,” said Congressman Emmer who led the bill.
Because crypto assets are classified as capital gains tax in the U.S., every time an asset such as BCH or BTC is spent, it qualifies as a taxable event. Even for the most assiduous of cryptocurrency users, this presents a labyrinthine challenge that reaches its peak in April when 12 months of trades and transactions must be reconciled.
“At the end of the day people just want the confidence to know they are doing the right thing and won’t be penalized later,” said Kevin Hobbs. He recommends that cryptocurrency holders “properly label all the transfers that they are doing and when they do them with an explanation of what it is for, along with the date, time and cost of the asset in fiat currency at that time.” As the Vanbex CEO concedes, however, “This can be tricky as you will also need to recognize a gain or loss.”
While the campaign for simpler taxation gathers momentum, in the here and now, crypto citizens are left with three choices: calculate their taxes alone, enlist the services of a professional accountancy company, or ignore the problem altogether and pray the IRS, CRA or HMRC doesn’t come calling.
What are your thoughts on cryptocurrency tax guidelines in your country? Let us know in the comments section below.
Image credits: Shutterstock.
Need to calculate your bitcoin holdings? Check our tools section.
Spot-markets for Bitcoin, Bitcoin Cash, Ripple, Litecoin and more. Start your trading here.