Cryptocurrency and taxes: how to use the 2018 losses to your advantage

Taxes

Taxes have been a hot topic in the world of cryptocurrencies this year. Many countries have tried to understand how to tax encrypted assets, while traders have figured out how to exploit them to erase losses. While bitcoins and other cryptocurrencies enter the mainstream, tax reduction strategies are beginning to emerge.

Read also: UK investors to pay capital gains and income tax on Bitcoin investments

Governments face bitcoin taxation late

While cryptocurrencies have entered the collective consciousness and adoption has grown, governments have been trying to figure out how to tax them. More recently, the Government of the United Kingdom has published a sprawling encrypted tax advisory document. Her Majesty & # 39; s Revenue and Customs (HMRC) reveals in the document that individual investors will be subject to the payment of capital gains tax every time they sell cryptographic assets such as BTC for profit. HMRC has ruled that investors would not be allowed to classify their investment in cryptocurrency as a "gamble", which is tax-exempt when it comes to winnings. <img class = "size-medium wp-image-259273 alignright” title=”Cryptocurrency and taxes: how to use the 2018 losses to your advantage” src=”https://news.bitcoin.com/wp-content/uploads/2018/12/shutterstock_776505043-300×200.jpg” alt=”Cryptocurrency and taxes: how to use the 2018 losses to your advantage "width =" 300 "height =" 200 "srcset =" https://news.bitcoin.com/wp-content/uploads/2018/12/shutterstock_776505043-300×200 . jpg 300w, https://news.bitcoin.com/wp-content/uploads/2018/12/shutterstock_776505043-768×512.jpg 768w, https://news.bitcoin.com/wp-content/uploads/2018/12/ shutterstock_776505043-696×464.jpg 696w, https://news.bitcoin.com/wp-content/uploads/2018/12/shutterstock_776505043-630×420.jpg 630w, https://news.bitcoin.com/wp-content/uploads/ 2018/12 / shutterstock_776505043.jpg 1000w "sizes =" (maximum width: 300px) 100vw, 300px”/>

At the start of the year, US Prime Minister Theresa May said that her government would be looking "very seriously" bitcoins and cryptocurrencies because of their potential to be "used by criminals".

Elsewhere in Europe, the European Union has been advised to devise common cryptocurrency rules, including taxes. While Switzerland has decided to abolish regulation, the Swiss Federal Council has stated that it wants "the best possible framework conditions so that Switzerland can establish itself and develop itself as a leading, innovative and sustainable position for the fintech and blockchain companies". In Russia, while the government is drafting a regulatory framework, citizens are obliged to pay 13% tax on their encrypted income.

In Asia this year, Korea has announced plans to tax cryptocurrencies and the first coin offerings (ICOs), while proposals to lower taxes on encryption in Japan have been announced this month; currently the government can withdraw up to 55 percent from cryptocurrency transactions as miscellaneous revenue. <img class = "wp-image-262722 aligncenter” title=”Cryptocurrency and taxes: how to use the 2018 losses to your advantage” src=”https://news.bitcoin.com/wp-content/uploads/2018/12/tax-300×242.jpg” alt=”Cryptocurrency and taxes: how to use the 2018 losses to your advantage "width =" 415 "height =" 335 "srcset =" https://news.bitcoin.com/wp-content/uploads/2018/12/tax-300×242 . jpg 300w, https://news.bitcoin.com/wp-content/uploads/2018/12/tax.jpg 471w "sizes =" (maximum width: 415 px) 100vw, 415 px”/>

The tax guidelines in the United States have generally been unclear. On December 21st, lawmakers filed a bill to create tax exemptions for certain cryptocurrency transactions. The state of Ohio also said it would accept BTC from its citizens to pay taxes.

Meanwhile, the South African government, generally considered crypto-friendly, this year has declared that the revenue earned from encrypted transactions must be declared – and said they would be trampling on cryptocurrency traders hindering taxes.

How cryptocurrencies can help you save on taxes

While governments are studying how to tax cryptocurrencies, there are ways that US citizens can use them to their advantage to pay Less taxes. This is due to a 2014 Internal Revenue Service (IRS) communication that treats cryptocurrencies as an investment property, rather than a currency. Every time you trade the cryptocurrency, the transaction is a capital gain (where you make money) or a capital loss (where you lose money). And any loss this year could end up putting you in a lower tax bracket.

The IRS allows taxpayers to deduct $ 3,000 in capital losses for a given year from the money earned from a daily job. Losses beyond this can not be deducted until several years later.

For example, let's look at someone who bought $ 5,000 BTC this year. After turning it into $ 10,000 through trading, they later lost money due to a decline in the markets and were very successful, losing $ 8,000. They cashed, leaving with only $ 2,000. They would then be able to collect a loss of $ 3,000 for the year that would be deducted from their taxable income. If that person earned $ 50,000 in regular income, only $ 47,000 would be taxable.

In order to cancel cryptocurrency losses as tax-deductible in the United States, it is essential to file all transactions that include gains and losses correctly, with exact dates. Some online tools, such as bitcoin.tax, can be useful for calculating capital gains and losses. While 2018 was a bad year for cryptocurrency investors, the possibility of wiping out thousands of dollars of bad operations should provide some consolation.

Disclaimer: This editorial is for informational purposes only. Bitcoin.com and the author are not experts in tax matters and can not be held responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by following the information contained in this article.