Understanding the cryptocurrency fees

2018 could be considered the most dramatic year within the Crypto space and not for the right reasons. Coming from ATH in 2017 and early 2018, a significant dip for most of the year saw the feeling for the new asset class struggle. However, we have seen tremendous growth in the sector and it is no wonder governments are taking cryptocurrencies seriously as a source of revenue through taxation.

Although there is no global consensus on the classification of digital assets as emerging asset classes, there is a general implication that cryptocurrencies fall under the definitions of "resources with economic benefits". It is worth noting, there are groups that oppose this, suggesting that cryptocurrencies do not come close to traditional financial definitions at all.

Without a clear definition of what cryptocurrencies are, countries have been left to enforce tax laws based on their own considerations. While a stakeholder section is lobbying for the creation of separate legislation for the bitco tax laws that are unique to their status, the tax model between countries revolves around the two uses of Crypto; Crypto as a means of payment and an investment.

Payment method

Cryptos, mainly Bitcoin, are accepted by a number of entities as a means of payment. Entities can be private individuals, citizens or companies. This type of use and the parties involved form the first two categories of taxation in the form of Income Tax for transactions carried out by individuals and the Company's tax for payments made to companies. For both tax categories, tax liabilities are incurred when cryptids are used to settle payments for goods and services.

Cryptos as investments

Since Satoshi has anonymously released the Bitcoin code and the subsequent creation of altcoins by the thousands, the Cryptos have been seen as investments. This is achieved through the purchase of digital goods for Hodling or trade. Hodling is leaning on assets with the hope of selling at a later time once prices are appreciated. The steep rise in Bitcoin prices, which hit a record high of $ 20,000 in 2017, means speculators and hodlers are up with expectations that Bitcoin prices will rise again. All profits made from this activity are subject to capital gain tax.

Trading, on the other hand, is more than a day by day, minute by minute purchase and sale of encrypted on trading platforms. Profits deriving from trading can be considered as income, therefore subject to income taxes or capital gains subject to capital gains tax.

Implications to users

In countries where cryptocurrencies are taxable, it is important that users are aware of the models used and are informed about general tax requirements. Just like in the fiat economy, failure to comply with cryptological regulations can attract huge fines and penalties. The key to this process consists of transaction records of similar crypto trading exchange platforms. Users should keep appropriate records with attention and detail for the date of purchase and sale, the value of fiat equivalent at the time of purchase and sale, as well as the proceeds of the sale. This makes it easy to file tax returns and minimize tax liability.

Minimization of tax costs

Companies operate with the sole purpose of obtaining the highest profits as the lowest possible costs. In this case, reducing the cost of taxation could mean significantly a lot. There are several ways to satisfy it. Note, however, they are different from tax evasion – which is a common criminal practice both at Fiat and at Crypto.

Involving Crypto tax platforms or accountants

Keeping records and tax returns can be easy enough for small transactions. It may not be the same for high volume transactions. As such, it is better to use Crypto tax services and software. In addition to helping to resolve heavy data, Crypto's tax accountants are more informed with tax laws and are able to identify tax exemptions that can save a lot of money.

Operational in tax-free territories

Some countries do not tax cryptography simply because the Cryptos operate within legal gray areas and do not have laws that dictate their use. Others deliberately take steps to offer "no tax" on all Crypto assets while some leave fees based on how they define Cryptos. Germany is one of these countries because it considers the private money of Cryptos and is not subject to taxes. Companies can take advantage of these territories to manage successful businesses.

Borrow against Crypto

Cash out is what attracts taxes. Likewise, long-term investments get a tax reduction. Today, Crypto holders can access encrypted loans using their assets as collateral. It would be a good idea to liquidate through loans while maintaining activities to reduce tax costs.

As discussed above, tax laws are specific to each country. In the United States, for example, digital assets are recognized as property and are taxed similarly to bonds and shares. The United Kingdom relies on the International Financial Reporting Standards (IFRS) laws that experts use to squeeze Cryptos into intangible assets and inventories using the IFRS profile. Attempts to compile general information about Crypto's global taxes are available online.

Note: this is a guest post and the author has shared his / her opinions on the topic, this is absolutely not a financial advice and readers should do their own research before making any financial decision.