Cryptocurrency laws are riddled with nuances, and new pieces of regulation relating to its usage are popping up almost daily. If you want to avoid any pitfalls or issues with the lawmakers of your country, make sure to read up on our top tips for understanding how digital currencies are taxed.

1.   Invest in the Right Crypto

Regardless of which country you are based in, your crypto will be taxed in some way or another. Our top tip? Invest in the right currency, so that the taxation process is worth it! There are some digital currencies that have been around for years, such as Bitcoin and Dogecoin, and others that are just now coming out of the woodwork, like Bitcoin ETF, which is a new crypto presale token. Before choosing which coins to invest in, we recommend learning more about predictions on their price, and what their history looks like (if they have one). You can read more on Bitcoin ETF price prediction here, made by cryptocurrency expert Alan Draper.

2.   Report All Crypto Activity

One of the best ways to understand how crypto taxation works in your country is by engaging directly with the tax authorities. This means making note of any crypto transactions; whether from real money online casinos, NFT trading, or others.

3.   Read up on Tax Laws

As much as we can help guide you through understanding how crypto taxes work in your country, these laws are subject to change. Therefore, it’s a good idea to always be on the lookout for updates in rules pertaining to cryptocurrency. Because digital currencies are still relatively new, changes are always being made in how they are regulated. What is true one day may not be the next.

4.   Report Transactions Made from Airdrops, Splits, and Forks

A lot of people trip up by not reporting certain types of cryptocurrency transactions. Not all countries may ask their citizens to report this activity, but it is worth doing anyway just in case. An airdrop is a form of marketing, where a crypto coin developer will gift its investors and users. Splits occur when a token or coin is split in two, leaving owners with two different types of blockchains, incompatible and valued differently. Last but not least is a fork, which is when a blockchain-related to a cryptocurrency is updated. If you have engaged in any of these activities during your crypto career, we advise you to make note of them!

5.   Use the Correct Reporting Forms

Reporting taxes is confusing enough as it is, without factoring in the different standard practices when it comes to crypto. Using the incorrect form when reporting activity could cause major delays, or even make it appear to taxation authorities in your country that you are not declaring crypto transactions. To avoid this, read up on which forms and report methods are required for digital currencies, and make sure to adhere to them.

6.   Crypto Gains and Capital Gains

This may differ from country to country, but most authorities view any gains made from crypto in the same way that they would recognize capital gains. To generalize, this means that short-term gains will be taxed at the ordinary rate, but assets held for over a year will be taxed at the long-term rate. However, there are some parts of the world where this does not apply, such as the Cayman Islands, Bermuda, and El Salvador, so check that this is relevant before applying to your situation.

7.   Inherited Cryptocurrency

Inherited cryptocurrency will most likely be treated like any other kind of inherited asset. The specific laws relating to this may change depending on the country, but in general crypto that has been inherited will be subject to an estate tax if it exceeds a specific value.

8.   Gifted Cryptocurrency

If you have gifted or been gifted cryptocurrency, expect it to be treated in the same manner as any other financial gift by the tax authorities. This means that it may be subject to a gift tax if over a certain amount.

9.   Put Steps in Place in the Event of a Life Change

In the event of a disability or death, make sure that your cryptocurrency is accessible by someone close to you. Most crypto accounts require unique passcodes, and this could cause difficulties with the authorities in your country later down the line. To bypass any difficult your loved ones may have accessing your assets, it’s worth leaving any passcodes or related information in a will.

10.   Get Advice from a Tax Professional

If in doubt, seek the advice of a taxation professional based in your country. Cryptocurrency is still in its infancy, and this is definitely reflected in the written law. To save yourself any hassle, employ an accountant who is familiar with local cryptocurrency procedures.

Conclusion

To conclude, it can be arduous and confusing to report your cryptocurrency activity, but it is essential. Tracking everything, from your investments to your buyouts, will save you not only a lot of time, but visits from your country’s taxation authorities.