With the rise in price and the growing adoption of cryptocurrencies, more governments worldwide have been ramping up efforts to tax them. Some countries are using extreme measures to get their hands on this new source of untapped revenue, but there are also tax-friendly countries that are not taxing crypto transactions. Furthermore, many tools exist to help crypto owners.
Also read: IRS Issues New Crypto Tax Guidance – Experts Weigh In
Know How Your Government Taxes Crypto
Each country, state, or even city has its own set of rules when it comes to determining which crypto transactions are taxable. However, few have clear guidelines as cryptocurrency is still a nascent area for governments to tackle.
The U.S., for example, first released guidance for crypto taxation back in 2014, but left out many issues. Five years later, on Oct. 9, the country’s tax agency, the Internal Revenue Service (IRS), published follow-up guidelines that answer many questions but also raise some unanswered ones. Besides, the tax agency seems to be confused about some key concepts such as how hard forks and airdrops work.
As a taxpayer, it is important to understand what is taxed in your country. In the U.S., the IRS explained:
The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability.
Furthermore, anyone who received cryptocurrency “from an airdrop following a hard fork,” will owe taxes “provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency,” the new IRS guidance details. Meanwhile, some crypto transactions are nontaxable such as
