This will potentially be a hurdle for SARS given that the appeal of Bitcoin is the freedom to trade without necessarily trading your name as well. Red flag But this is not necessarily the issue at hand. To put things into perspective, some background is necessary. CGT, for the most part, applies to assets which are held and sold by taxpayers. Without going into too much detail, you buy a house, you sell the same house and you pay tax on any gain you make.
Simple enough. However, what is the position when you buy and sell assets for a living? Like a car dealership for example? This is where SARS considers the proceeds of these sales to no longer be capital in nature and therefore subject to CGT but instead, considers it revenue in nature, making the proceeds subject to Income Tax. Multiple court cases have contributed to the arguments hereon. And this appears to be where a difficulty will arise on the Bitcoin front. Traders in Bitcoin, those who buy and sell it frequently as a means of generating profits should, if current tax principles are anything to go on, be subject to Income Tax.
For those playing with big money and making sizeable gains, the figures start becoming concerning. What if anonymity falls away?
Bitcoin: The Tax Question
Yes, SARS has not yet figured out how to trace Bitcoin transactions and yes, their position is currently that Bitcoin is subject to CGT, but what happens when they find a way and in doing so, discovers those who trade Bitcoin for profit? With recent cases determining that retrospective application of tax provisions is not unlawful, consider the implications and the penalties that SARS may impose.
We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations. Though these developments may have come as a surprise to some proponents of the cryptocurrency, it is important to realize that taxes are imminent, irrespective of the nature of dealings and the asset classes.
What Is Cryptocurrency?
There are hundreds of brokers, intermediaries, and exchanges that offer cryptocurrency trading. However, none are obligated to provide tax reports to market participants though a few may do so at their own discretion.
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For instance, Coinbase does provide a "cost basis for taxes" report. In the end, the individual is responsible for maintaining the necessary records related to their cryptocurrency dealings.
Any dealing in bitcoins may be subject to tax. Say, you received five bitcoins five years ago, and spent one at a coffee shop four years back, spent another two for buying goods at an online portal three years back, and sold the remaining two and got the equivalent dollar amount one month back. For each such transaction on the various dates, you are expected to maintain the dollar equivalent value for each and compute your net dollar income from bitcoins. Your tax liability will be computed accordingly. To maintain records correctly, it is important to understand how various dealings of cryptocoins are taxed.
Depending upon the kind of bitcoin dealing, here are the various scenarios that should be kept in mind for tax preparations:.
- How Is Cryptocurrency Taxed?.
- Crypto Taxes in South Africa?
- Bitcoin Taxes in A Guide to Tax Rules for Cryptocurrency - NerdWallet;
- Bitcoin Tax Calculator Instructions?
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If bitcoins are received as payment for providing any goods or services, the holding period does not matter. They are taxed and should be reported, as ordinary income.
If bitcoins are received from mining activity, it is treated as ordinary income. Additionally, there may be a self-employment tax to be paid on such receipts. If cryptocoins are received from a hard fork exercise, or through other activities like an airdrop , it is treated as ordinary income.
Cryptocurrency Taxes 2021: What You Need To Know
If bitcoins are bought as an investment and sold at a profit, the treatment of such income depends on the holding period. If held for less than a year, the net receipts are treated as ordinary income which may be subject to additional state income tax. If the holding period is for more than a year, it is treated as capital gains and may attract an additional 3. The dollar amount received from such a sale is invested as per the choice of the donor, who benefits by receiving a tax deduction in the year of the donation. However, care should be taken that only cryptocoin donations made to eligible charities qualify for such deductions.
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- More From Poole Thought Leadership.
- Crypto Tax A Complete US Guide - CoinDesk.
- Bitcoin Tax Calculator.
- BITCOIN: THE TAX QUESTION.
Selling the tokens and then donating the dollar amount will not reduce your bitcoin tax burden. Additionally, the deductions are available for individuals who itemize their tax returns.
How Is Cryptocurrency Taxed?
The rules also have provisions for carry-forwarding losses. Income from bitcoin dealings should be reported in Schedule D , which is an attachment of form While the IRS released its first set of guidelines and rules in , fewer than individuals reported capital gains or losses related to Bitcoin trading between and Investing in cryptocurrencies and other Initial Coin Offerings "ICOs" is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs.
Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies. District Court for the Northern District of California. Coinbase, Inc, Case No. Internal Revenue Service. Accessed Dec.
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Bitcoin Tax Calculator
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