Are cryptocurrency mining funds subject to taxation
Until the end of 2017, very few specific taxes existed in the United States and the rest of the world regarding the development of cryptocurrencies.
As the price of leading tokens, such as BTC, ETH and some others, began to rise at the end of 2017, more and more miners began to worry about the possibility of taxing cryptocurrency assets. And not without reason.
The relevant government departments around the world are starting to pay more attention to the development of cryptocurrency systems.
If you use cryptocurrency in your business, here is all you need to know about the latest tax rules.
First, we look at the recently introduced US laws. Then we look at some taxes on cryptocurrency mining in the rest of the world.
U.S. Tax Laws
Despite the fact that in the past it may have been possible not to legally pay taxes on the extraction of cryptocurrencies, everyone who makes a profit from such activities in 2018-2019 will now be forced to think about paying taxes.
No matter for what purpose you are mining tokens – as a small hobby or as part of a full-fledged business, there are new rules adopted by the U.S. Congress in December 2017 that change the way you handle IRS cryptocurrencies.
The era of the correct era is over
Before the U.S. Congress formulated a clearer resolution in 2017, the classification category of cryptocurrency assets was interpreted in accordance with the opinion of many tax experts.
This is because cryptocurrency miners and traders viewed cryptocurrency activities like investing in real estate for tax purposes, citing IRC Section 1031.
In essence, this regulation means that a miner can theoretically trade mined cryptocurrency without the need to pay taxes.
However, now there are no more tax benefits. U.S. citizens and anyone mining Bitcoin in 2018 will have to pay taxes starting in 2019.
The main categories of taxes
Another important aspect is how you report cryptocurrency mining revenue as a source of income.
There are currently two options in the U.S.
- The first option is to file income from production as income from self-employment and pay income tax. By choosing this option, you can deduct expenses such as costs for farms, video cards and other equipment, electricity bills and other related costs. The peculiarity of this option is that if you are engaged in activities at home, for example, you will need to have a separate electric meter to measure the energy consumed specifically for mining purposes. If you use the same electric meter for other purposes (for example, heating and cooling), it is much more difficult to obtain permission from the IRS for a provable business deduction if the costs of work and home are listed on the same account. The main disadvantage of this option is that if you do not consume a significant amount of electricity, taxes are likely to be much higher than in the second option.
- The second option is to present the extraction income as “other income”. At first glance, this does not seem like a good option, because you can’t deduct taxes on expenses, as you can do this with the first option. However, the total tax should be lower with the second option, because you essentially have to list all income in the hobby / secondary income category, which has a much lower tax percentage than the first option.
There are several things to consider when paying taxes when mining cryptocurrencies as a secondary income.
According to TurboTax, the first taxable event occurs whenever a miner launches a new coin. The IRS considers this to be ‘income.’
From the point of view of the miner, it would be difficult to correlate the value of the dollar, equivalent to a highly volatile coin, due to constant price fluctuations, due to the characteristics of this market.
The best way to keep track of the value is to record the prices at the moment you mined this coin. It is clear that this is superfluous work.
However, it is important to do this in order to comply with tax laws as much as possible.
For miners who previously mined cryptocurrencies and did not receive cash for dollars immediately after mining, this leads to some uncertainty.
What could be net profit today may well be a net loss tomorrow.
In addition, whenever you profit from trading a coin, you must pay a second separate capital gains tax.
It is important to note that if you mine this cryptocurrency and immediately convert it into US dollars, there is no need to pay capital gains taxes.
What about countries other than the US
Like in the USA, many other countries quickly changed their positions in relation to cryptocurrency due to the growth in the value of cryptocurrency in December 2017 / January 2018.
Even when prices fell, governments seem more than ever concerned about this issue. Some countries levy taxes on both traders and miners.
- Australia. Mining is seen as stock trading; Therefore it is taxed.
- Belarus. Critical tax breaks will officially last until 2023.
- Denmark. In the future, cryptocurrency companies will be taxed. Private individuals are not taxed.
- Germany. No taxes if cryptocurrency is held as an asset for more than one year. After that, you can convert the cryptocurrency into euros or another currency without having to pay capital gains taxes.
- Japan. Like the United States, cryptocurrencies may be subject to income taxes and capital gains taxes.
- Singapore. Trading operations are not regarded as capital gains; However, there is a tax on goods and services (GST) at around 7%.
- Slovenia. There are currently no cryptocurrency taxes.