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IRS’s guidelines on Cryptocurrencies and taxation

It has long been suspected that government around the world will be targeting cryptocurrencies for taxation — despite the challenges that move presents. For instance, the current nature of Bitcoin and cryptocurrency dealings doesn’t make it friendly for any government to tax. Reporting is difficult, and there are issues such as anonymous trading, for instance.

South Korea’s tax rules that target at ending anonymity in crypto trades and enforcing KYC came to force just yesterday. It is likely that Internal Revenue Service will also be harder on implementing crypto capital gains this year.

For instance, there has been a suspicion that cryptocurrency users do evade taxation — even though that is not the intention of cryptocurrencies. However, its good plans are considerable and being test world over.

Read Next: South Korea now targeting Bitcoin exchanges with huge tax bills

In the meantime, IRS has provided little guidance on Bitcoin or cryptocurrency taxation. However, it treats cryptocurrencies (including Bitcoins), as property for tax purposes. As it stands, all selling, spending and even exchanging crypto for other tokens attract some capital gains. Compensation or receiving crypto by other means is consider as ordinary income and taxable. However, the implications and nature of cryptocurrencies as making it difficult for taxation are well documented.

Also, IFS does not provide guidance on some issues regarding cryptocurrencies. For instance, exchanges and wallets are not to choose which coins to sell or exchange. So, it is not clear whether they would tax incoming or outgoing.

For those interested in taxation, holding the crypto for a year will reduce the amount of taxation as long-term gains. Long-term gains are tax at a reducing rate of 15 to 23.8 percent while short-term ones would be taxed at a higher rate.

The bare truth about it is that Bitcoin and cryptocurrencies’ dealings are sort of mainly dissimilarities. Thus, from another type of currencies due to their anonymity nature. So, it is not clear whether KYC and other identification procedures would pull crypto back as another useless type of money. It partly would! Under such circumstances, crypto would have to survive for its usability and not…anonymity.

Also Read: Australia will remove the double taxation obligations: Bitcoin

Nevertheless, it is to see how would be governments in taxing crypto by eliminating anonymity benefits will avoiding adverse effects. This is starting with South Korea. Otherwise, for now, it would be hard for crypto enthusiasts to focus the debate on whether there are any benefits of anonymity to unwilling regulators. For many, the only reasons for wanting anonymity would be to commit a crime or a similar intent!

Other cases of dealings that would qualify for taxation include trading, which qualifies for taxation under gains and losses. The same would be spending crypto and converting it to fiat at a profit. Exchanging tokens also qualifies as a sale as does receive payment in crypto. Airdrops, mining, and ICOs qualify as income to individuals and businesses.

 

 

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David

David Kariuki is a journalist who has a wide range of experience reporting about modern technology solutions including cryptocurrencies. A graduate of Kenya's Moi University, he also writes for Hypergrid Business, Cryptomorrow, and Cleanleap, and has previously worked for Resources Quarterly and Construction Review magazines.

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