A Handful Guide To Cryptocurrency Tax Rules

Shailesh  |  Mar 20, 2020

Since the advent of cryptocurrencies and blockchain technology, people across the globe have been fascinated due to their presence. Both of them have proven to be an innovation in the field of technology. Cryptocurrencies gained traction because of their decentralized nature. Due to this reason, countries are looking forward to providing cryptocurrency tax rules. Some countries are looking forward to providing tax rules on these digital assets, while others have somehow provided them. Let's first have a look at some countries and see how far they have gone regarding blockchain and cryptocurrency adoption.

Status Of Cryptocurrency And Blockchain Adoption Around The World


1. China 


China circular Icon


China has shown significant engagement in the world of cryptocurrencies. Although it has provided stringent rules for crypto adoption, traders have somehow managed to use crypto assets for trading. Many cryptocurrency exchange platforms have been shut down, and people have been accused of trading with crypto assets. However, China has welcomed blockchain technology by embracing its use in several applications. Also, it has been working on Digital Currency or Electronic Payment System (DCEP), a crypto asset which would be backed by the Chinese government.

2. Iran 




Iran is a country which has shown interest in mining cryptocurrencies. However, it has put a ban on the use of cryptos as a medium of exchange. Furthermore, economic sanctions have forced Iran to find new ways of generating income. The country has been using Bitcoin mining as a way to enhance its economy. At the latest, crypto miners who have consented to repatriate to their overseas earnings have been released from crypto taxes in the country.

3. Russia 




Last year, Russia was in rumours on providing regulations for crypto adoption. Many proposals came forward on the usage of cryptocurrencies, but none of these materialized. Russia has been examining its stablecoin bounded to real-world assets in its regulation model. This year, Russia has initially put a ban on the use of digital assets. However, it could soon look forward to providing cryptocurrency tax rules and regulations.

4. Japan




Japan has made significant progress in the adoption of cryptocurrencies. Due to this, more than 10% of the total global traffic originates from crypto exchanges in Japan. Until now, the country has been crypto-friendly. Japan has provided some crypto tax rules and regulations. Any profit made through crypto trading will be taxable in Japan. The taxable amount in Japan is over 20000 yens.

5. Malta




Malta has been a crypto-friendly country. It has provided crypto tax rules and regulations according to which, long-held digital assets are non-taxable. Also, if a person has made cryptocurrency trading within a day, the income made will be taxed. Malta has embraced the blockchain technology and wants to emerge as a blockchain valley.

6. India




Cryptocurrencies and blockchain technology are newcomers in India. In 2018, an introduction about the blockchain technology was given. The Reserve Bank of India considered the use of cryptos as illegal. However, this year, the Supreme Court of India has initially removed the ban on the use of cryptocurrencies which was earlier put by RBI. India has yet to confirm the legality of Bitcoin and other cryptocurrencies. In future, the country could come up with cryptocurrency tax rules and regulations.

7. The USA




The USA is a country which has given legal status to Bitcoin and some other cryptocurrencies. The Internal Revenue Service(IRS) of the country has provided some guidelines on cryptocurrency tax rules. In the USA, the adopters of IoT technology have also adopted blockchain technology. The nation could see more blockchain and crypto adoption by the end of this year.

Taxes On Cryptocurrency 


Many countries are still confused about providing cryptocurrency tax rules. However, the USA has clearly come up with some rules. As discussed above, the IRS of the USA has provided some guidelines on levying tax on cryptocurrency trading. These guidelines have been provided in the official IRS guidance of 2014. According to it, digital assets like Bitcoin together with other cryptocurrencies such as Ethereum, XRP, Litecoin etc. should be treated as taxable assets. People would have to report about profits and losses made while trading with these virtual currencies. Ignoring this would be seen as a fraudulent activity in the eyes of the IRS.

Taxable And Non-Taxable Events


According to the IRS guidelines, events like trading cryptocurrencies to fiats such as US dollars, trading cryptocurrency with another cryptocurrency, making use of cryptocurrencies for buying and selling goods and earning income from these digital assets will be considered as taxable events. However, events such as providing cryptocurrency as a gift, transferring cryptocurrencies without realizing profit or loss made and purchasing cryptocurrencies with USD will not be counted in taxable events.

Calculating Profit And Loss Made From Cryptocurrencies


Two main things which are considered while calculating gains and losses made from crypto trading are cost basis and fair market value. 

1. Cost Basis 


The first step is to determine the Cost Basis. Cost basis includes crypto purchase price together with other expenses like brokerage commission and transactional charges. The amount that would come by adding crypto buying price and extra charges will then be divided by the number of cryptocurrencies held, to determine Cost Basis.

2. Fair Market Value


The second step is to see the Fair Market Value. Fair Market Value is the selling price of your crypto asset, which would be determined by the open market.

Once Cost Basis and Fair Market Value are determined, you have to subtract Cost Basis with Fair Market Value to calculate profit or loss made. If Cost Basis is higher than the Fair Market Value, you have made a loss, and if Fair Market Value is higher than the Cost Basis, you have made a profit. Finally, the tax will be levied on your capital gain.

How To File Tax On Cryptocurrencies


In order to file tax on cryptocurrencies, you will require IRS form 8949 and 1040 Schedule D. All the crypto trades made will be recorded in IRS form 8949. After you have recorded them, they will be added. This sum will then be transferred in 1040 Schedule D. Filing tax manually is a hectic task. Due to this, people are preferring crypto tax software which would automate the process of reporting cryptocurrency tax.

New Guidelines From The IRS


The new guidelines from the IRS have emerged due to several opinions which came from tax professionals and crypto tax firms. According to these new guidelines, income from cryptocurrency which is hard forked will be taxed. However, if the cryptocurrency goes through a soft fork, no tax will be levied as income has not been realized. Moreover, the tax will be levied on income from cryptocurrency, which has been received from the airdrop.



cryptocurrency tax rules


In this article, we have seen some cryptocurrency tax rules, which have been provided by the IRS guidelines of the USA. Also, we have seen countries which have or have not adopted cryptocurrencies and blockchain technology. Cryptocurrencies have become popular, and due to their increasing popularity, some governments are looking forward to providing crypto tax rules. The USA has somehow considered Bitcoin, and some other cryptocurrencies as assets that should be taxed. China is still not in a mood of giving any legal status to these virtual assets. However, it could be hoped that cryptocurrencies, just like fiats, would gain legal status in all the countries around the world in the coming years.


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