Due to the anonymous nature of transactions conducted with cryptocurrency, many buyers and sellers had hoped that they would be able to escape the dreaded phenomenon of having to pay taxes. However, that is not the case.
All transactions related to Bitcoins or any other altcoins, like mining, spending, trading, exchanging and airdrop are most likely taxable. So, when it comes to Cryptocurrency, a taxable event occurs whenever it is traded for cash or any other form of cryptocurrency or whenever it is used to purchase any goods or services.
However, the legislation regarding cryptocurrency taxation is in most countries not concrete or transparent enough, and thus it is mostly up to the investors to figure out how to optimise the situation.
First and foremost, it is of utmost importance to track all the purchases and disbursements that are taking place for each currency to facilitate an accurate report of the gains and losses. All profits are taxed while all losses lower one’s overall tax liability. Some crucial details which have to be kept in mind are when the coin was bought, how much was paid for it when it was sold, and proper records of the dates of the transactions.
All crypto income falls either into the category of capital gains tax if the income is due to the buying and selling of coins, or in the category of income tax if the income is due to mining of coins. Occupying two categories at once is impossible.
Since the reporting requirements of cryptocurrency are immense, it is always a better idea to rely on a third party tracking resource. Crypto markets are incredibly dynamic and prone to sudden fluctuations. The number of tradeable currencies is also increasing by leaps and bounds, which adds to the complexity of the situation. Moreover, the trading cycle is a 24/7 process. Some tracking platforms are CoinTracking, bitcoin.tax, CRYPTOFINANCE to name a few. These resources also track gains/losses and translate them into the tax liability in that jurisdiction.
It is also essential to know the legislation prevalent in your jurisdiction. What laws might be valid to say the USA or Canada, may not be the same for the European Union countries or the Asian countries. For example, U.S. lawmakers have recently called upon the Internal Revenue Service (IRS) to provide a more clear and comprehensive guideline for crypto taxes, while the Thailand Government has decided that crypto investors will have to pay 7% of the value of the cryptocurrency for VAT and a 15% capital revenue tax on cryptocurrencies transactions. These laws are not the same for any two countries and are also prone to frequent changes and revisions, and thus should be tracked carefully.