Cryptocurrency and taxes are two things that never go well with each other. Most countries still can’t clearly define what cryptocurrency is hence can’t properly tax profits that citizens made from trading it. In some countries, Bitcoin is already being used as a legal payment tool, but in countries like the U.S., there are no clear guidelines on both cryptocurrency trading or taxation.
Taxes from cryptocurrency trading
The most popular question among crypto traders is “Should I pay taxes from trading crypto?” The answer is “yes”, but there are numerous cases when you can avoid taxes.
Negative trading results
If your cryptocurrency trading rendezvous didn’t end up well and you lost money while trading crypto, you won’t have to pay taxes. But keep in mind that you should count or profit or losses in the fiat currency rather than Bitcoin or any other digital asset.
Depending on the strictness of taxation laws in your country, the taxation regulator might ask you to provide the trading history to compare your profits and losses. That’s why it’s important to trade only on exchanges that are licensed in your country. Taxmen might ignore your orders reports if they are coming from unreliable sources like small decentralized exchanges or something similar to it.
While it might not be declared in the tax law itself, sometimes you might not worry about paying taxes from a small profit that you’ve made on the cryptocurrency market. Small retail traders from India, for example, don’t declare any profit below $1000 U.S. dollars hence isn’t paying any taxes from it.
But you should always keep in mind that the bigger your profit is, the chances of getting caught in tax evasion are getting higher. The risk of keeping around 20% of your profit doesn’t worth getting in jail. Declare any profits greater than $100 and make sure to save a small % from it to pay off taxes later.
While trading cryptocurrency, you keep most of your portfolio in various altcoins, stablecoins, or Bitcoin. The most important thing is that you own digital assets and don’t move them into fiat. While owning cryptocurrency, you have a right to avoid taxation since you haven’t realized your profits in fiat. Though you may be profitable in BTC, you have almost no way of spending it without transferring it to USD or your national currency.
Operations inside the Blockchain
Similar to unrealized profits, after buying cryptocurrency and using it for operations inside the network, you have no obligation to pay any taxes since you’ve made no profit at all. Especially if you spent the majority of your collateral on transactional taxes, you can just withdraw your funds without worrying about taxation.