It isn’t a secret that the government has a serious grudge against tax defaulters. And their latest target? Crypto holders and investors. In the US, the IRS is already going after people who they believe have defaulted. Their strategies include sending out letters (about 10,000 of them) to crypto investors who they believe have been hiding their earnings through trading virtual currencies like bitcoin, litecoin, and others.
The US government announced previously that all forms of virtual currency would be taxed as property. That means that bitcoin, for example, would attract capital gains tax. They have not released any intricate guidelines for investors to follow and this has left many confused about what the rules are. The letters sent out by the IRS are just a routine reminder of tax obligations but some believe there is an impending crackdown.
This means that if you fall into the category of a bitcoin investor, you might need help figuring out how to pay your taxes to avoid any kind of unforeseen circumstances, including possible jail time. So, what if you’re not in the US? In the next section, we will discuss the way governments around the world are tackling the ‘scourge’ of unpaid bitcoin taxes.
The world and your bitcoin
It’s hardly surprising that most governments around the globe do not take kindly to the law being broken. Here is a look at some specific countries and how they handle unpaid bitcoin taxes.
Japan – bitcoin as a commodity
Japan treats bitcoin as a commodity. This means that it is subject to Income tax, capital gains tax, and corporate tax. It is also perfectly legal in Japan to use bitcoin in everyday payments. In Japan, the tax percentages on bitcoin and other altcoins range from 15% to 55%. A lot of people find this process to be quite difficult as they are required to pay levies on their conversion gains.
A system that will allow the Japanese government to track transactions is rumored to be in development too. The system is intended to monitor all digital currencies, trading platforms, and coins. The government has also announced plans to create special niche taxes for crypto investors who earn more than $80,000 in profits. Japan is among the countries that do not treat bitcoin as property and so it does not attract capital gains tax.
Switzerland – taxes vary region to region
The Swiss government has different taxation laws depending on the situation. Individuals who receive their salaries in crypto are expected to declare it for income tax purposes. Bitcoin and other coins gained from mining have to be declared as self-employment income. Bitcoin received through professional trading is filed under the business tax. If you are a bitcoin investor and you reside in Switzerland, you should get yourself acquainted with the different manners of taxation you might be liable for.
As an investor, if you trade solely from your personal account, your gains are given tax-exempt status. It is important to note that Switzerland makes use of a system called the canton tax structure. With this system, different regions can levy varying taxes on an individual’s crypto holdings.
Australia – where bitcoin is property
The Australian Tax Office (ATO) classifies bitcoin and all other altcoins as property. It clearly states that all gains made from the selling of digital currencies are subject to capital gains tax. All transactions carried out using bitcoin have to be reported to the ATO for tax purposes. Much like how crypto taxes work in the US, the ATO also requires filers to use the First In First Out accounting method to calculate their capital gains.
In addition, bitcoin is treated as barter arrangements and are not subject to goods and services tax. Although, trades involving new crypto assets are still covered by capital gains tax.
Singapore – ahead of the game in crypto taxation
Singapore is one of the leading countries in crypto taxation. The Singaporean government only taxes profits which are acquired through trading activities with crypto holdings. Holding crypto for a long time does not attract any taxes (even long-term investments). The Singaporean government is, clearly, very lax when it comes to crypto taxation. If you are looking for a crypto tax haven, the Singaporean government would be happy to take you. It is important to note here that you are considered a tax resident of Singapore if you have spent a total of 183 days or more in the country.
The bottom line
If you have any hidden transactions or backdated taxes on your crypto earnings, you need to deal with them as soon as possible. Depending on your region, you will need to adjust your taxes accordingly. As this article has shown, some governments are stricter than others in regards to bitcoin taxation. To get more information about crypto, consult a crypto tax professional for guidance.
We hope this article has shed some light on how serious the issue of bitcoin taxes is. Tax avoidance is a serious issue and carries a variety of penalties, including potentially a jail sentence.
An effective way to avoid any issues with taxation is to maintain accurate records of all your bitcoin transactions. Proper bookkeeping will ensure that you are on top of all your dealings and can pay any taxes even if they are in arrears. For example, If you are in the US and you have received a crypto tax letter, you are required to adjust all your trades to ensure you have paid your taxes. Proper record-keeping will enable you to stay up to date faster.
Hiring a professional to help you to be in compliance with the law should not be ruled out either. A professional will be able to help you navigate the murky waters of government regulations. If you are in a country like Switzerland, you will definitely need a professional to guide you, as the rules are more complex.
Robin Singh is the co-founder of Koinly.io – a cryptocurrency tax solution that automates capital gains reporting for USA, Europe & Australia. Besides being a crypto enthusiast, he is also a passionate gamer and can be found in Orgrimmar when not at his desk.