April 21: Major economies across the globe have resorted to considering cryptocurrencies as digital assets and are looking forward to tax the income received from the same. Although nations have been extremely hesitant to legalize cryptocurrencies in their jurisdictions, they have left no chance of letting go of the opportunity of earning big bucks by levying taxes on the commodity.
However, as investors, individuals sometimes are so enchanted by the profits they make from cryptocurrencies that they tend to overlook tax consequences, leaving them with no income.You experiment with cryptocurrency, earn good money, don’t bother about taxes, and then when the market dips, you’re in a great deal of trouble.Tragic anecdotes are frequent on Reddit, such as the $47,000-a-year employee who ran up a $50,000 tax bill that couldn’t be paid ended up concluding, that he has unwittingly wrecked his life.
Here are a few crypto taxation disasters people tend to make while venturing into the realm of cryptocurrency:
- A lot of people are under the impression that no tax can be levied once the fiat currency is converted into Ethereum or Bitcoin and nothing would be taxed until and unless it is swapped back to fiat currency. Just to break the bubble, its actually not true.
- Serial traders in the crypto industry don’t think about the tax implications after trading left, right and center. They do not think it is important to keep a track on how much they have traded and fail to realize that every trade transaction is taxable. Sometimes traders tend to use bot algorithms that automatically facilitate trade. This puts the trader in a very difficult situation as he/she wouldn’t be able to keep up with the number of trades.
- Another disaster takes place when people purchase in a bull market and make a sale in a bear market. Initially this leads to a person having a fat bank balance. When people began trading altcoins in order to gain more bitcoin, they ended up making a good amount of quick bucks. However, since most of the people trading in crypto haven’t had adequate training experience in stocks or forex, they never really bothered to keep aside a chunk of their earnings for tax.
- Some people think that they have made it big by trading and making profits. When asked if they have enough fiat money to pay taxes, the color drains from their faces due to the lack of knowledge about the fact that they’re supposed to pay taxes. By the time it’s time to pay taxes, the market fluctuates leading to a drop in prices and hence was sold at a huge loss.
A massive boom in the crypto industry has made it a lot more attractive to be scrutinized by the tax authorities. If you believe that you have goofed up while paying taxes and haven’t heard from the authorities yet, don’t be surprised when they slap a surprise tax bill once they’ve identified any arrears from your end. Finjuris have the expert international tax professionals to help clients manage the complexities of multiple tax systems and cross-border challenges.