A definitive indication of maturing cryptocurrency use is seen in the latest trend – professional and retail traders are seeking tax reduction. On the other hand, governments are yet exploring methods of taxing crypto assets. However, traders want to take advantage of the current laxity in taxing structures by their respective governments to offset their losses and seek tax cuts.
Strategies to cut taxes with crypto losses
One of the most advanced crypto taxing structures thus far was released recently by the United Kingdom. In an elaborately worded document presented by the Revenue and Customs Departments seeks investors to pay capital gains tax every time they make a profit by selling crypto they own such as a BTC. It also strictly clarified that these earnings or profits earned from the sale of these coins cannot be classified as “gambling” winnings and thereby tax exemption be sought. Currently, a no-tax facility is available on winnings from gambling.
EU is yet waking up to the possibilities of taxing crypto trade and will finalize on its taxing structure at the earliest. Swiss Federal Council has no regulations yet but is receptive to establishing a framework which will pre-date mass adoption and allow it to pioneer the transactional standards for these virtual currencies much in the same ways it did in traditional banking ecosystems. Russia currently taxes 13% on all types of cryptocurrency earnings, Japan has 55% taxes on miscellaneous income.
Cutting Taxes in the US
The current advantage for traders is that most of the regulatory taxing structures are not very complex and are rudimentary in their application allowing investors and traders to explore strategies and lower the taxes they have to pay.
An Internal Revenue Services (IRS) notice in 2014 can be leveraged to seek tax cuts, as this notification classifies cryptocurrencies as an investment property and not as a currency.
Thus gains can be classified as capital gain and loss as a capital loss. As per current provisions, capital losses tax deduction can be $3,000. However, this can be done only if the taxpayer has complete details of the property purchase dates, the transactions type, whether gains or loss. The developers in the industry already have a formidable crypto tax calculating aid in Bitcoin.tax. Along with other tools, options traders can explore the possibilities of writing-off their losses for the financial year in which the cryptocurrency was volatile and the second half of the year saw a market correction.