Crypto staking rewards are taxable once received: IRS
The U.S. tax department will be requiring taxpayers to count staking rewards as gross income at the time they gain “dominion” over the tokens.
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Značka: tax
Kenya considers tax on crypto, NFT transfers and online influencers
A bill introduced in Kenya could see a tax added to cryptocurrency and NFT transfers and has been met with a mixed reaction online.
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White House advisors renew push for 30% digital mining energy tax
The May 2 blog post by the White House’s Council of Economic Advisers (CEA) has already attracted strong criticism from the community.
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Revolut taps Koinly for cryptocurrency tax reports
Digital bank Revolut has partnered with Koinly to integrate cryptocurrency tax report services for users.
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IRS introduces broader ‘Digital Assets’ category ahead of 2022 tax year
American taxpayers will find a broader, more defined category encompassing cryptocurrencies and nonfungible tokens (NFTs) in their 2022 IRS tax forms. The draft bill released by the Internal Revenue Service features a well-defined Digital Assets section that outlines if and how taxpayers will account for the use of cryptocurrencies, stablecoins and NFTs.Page 16 of the draft defines Digital Assets as any digital representations of the value recorded on a ‘cryptographically secured distributed ledger or any similar technology.’ 2021’s tax form required taxpayers to indicate whether they had received, sold or exchanged in ‘virtual currency’ – with this term changing in the yet-to-issued 1040 tax form for 2022.Taxpayers are required to answer the Digital Assets section of their income tax return whether or not they have engaged in digital asset transactions during the tax year.A number of situations will require American taxpayers to indicate yes to the question on Digital Assets of Form 1040 or 1040-SR. This includes receiving as a reward, award or payment for property or services or sold, exchanged, gifted or ‘disposed of a digital asset in 2022.Related: IRS to summon users who don’t report and pay tax on crypto transactionsThis would include instances where an individual received digital assets as payment for property or services provided or as a result of a reward or award. Receiving new digital assets through mining or staking also falls under this category, as does transacting digital assets in exchange for goods or services as well as exchanging or trading digital assets. Holding cryptocurrencies, stablecoins or NFTs or staking tokens is also clearly addressed in the draft tax form:“You have a financial interest in a digital asset if you are the owner of record of a digital asset, or have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest, or you own a wallet that holds digital assets.”The Digital Assets explainer also outlined conditions that do not require taxpayers to check Yes on their tax forms. If an individual holds a digital asset in a wallet or account, transfers digital assets from a wallet or account to another wallet or account owned by themselves or acquires digital assets using U.S. dollars or other fiat currencies through electronic platforms like PayPal.Digital asset transactions can be clearly classed in either capital gains or income sections of the 2022 tax return.If an individual disposed of any digital asset during the year which was held as a capital asset, they are expected to calculate their capital gain or loss and report on Schedule D of the tax return.If individuals received digital assets as payment for services or sold digital assets to customers in a trade or business, this would need to be reported as income in its specific category.
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Tax on income you never earned? It’s possible after Ethereum’s Merge
After much buildup and preparation, the Ethereum Merge went smoothly this month. The next test will come during tax season. Cryptocurrency forks, such as Bitcoin Cash, have created headaches for investors and accountants alike in the past.While there has been progress, the United States Internal Revenue Service rules still weren’t ready for something like the Ethereum network upgrade. Nonetheless, there seems to be an interpretation of IRS rules that tax professionals and taxpayers can adopt to achieve simplicity and avoid unexpected tax bills.How Bitcoin Cash broke 2017 tax returnsBecause of a disagreement over block size, Bitcoin forked in 2017. Everyone who held Bitcoin received an equal amount of the new forked currency, Bitcoin Cash (BCH). But when they received it caused some issues.Bitcoin Cash was first issued in the fall but didn’t hit Coinbase or other major exchanges until December. By that time, it had gone up significantly in value. For tax purposes, receiving free coins is income. Suddenly, many investors had a lot of income to claim that they hadn’t anticipated.Related: Get ready for a swarm of incompetent IRS agents in 2023Many crypto-savvy accountants advised clients to claim the value of Bitcoin Cash when it was issued, not when it finally arrived in their exchange accounts. No IRS guideline explicitly said this was OK — in fact, it runs contrary to the accounting principle of dominion and control — but it seemed like the only reasonable way to handle the issue.Airdropped proof-of-work ETH is another gray areaAs a result of the problems with reporting income from Bitcoin Cash, the IRS issued Revenue Ruling 2019-24 to address the treatment of blockchain forks. According to the ruling, forks that result in the airdrop of a new currency to an existing holder are taxable accessions to wealth. While not the usage of “airdrop” most investors are used to, the IRS uses the term to describe when the holder of an existing cryptocurrency receives a new currency from a fork.The potential confusion with the Ethereum upgrade is that assigning the forked and original currency based on the ruling alone is unclear. One can easily see how the IRS could take the position that, following the upgrade, the Ether (ETH) tokens held in wallets and exchanges across the world is a new coin, and that Ethereum proof-of-work (PoW) — which continues on the legacy network — is the original.While the argument makes logical sense, this position would also result in chaos. Every U.S. taxpayer who held ETH — or assets such as nonfungible tokens (NFTs) based on Ethereum smart contracts — on Sept. 15 would have to claim its value as ordinary income. Though it’s using the old technology, Ethereum PoW is clearly the “new” coin.The assets of the investor haven’t changed — rather, the underlying consensus mechanism was upgraded. Plus, unlike Bitcoin Cash, which stemmed from a disagreement with two legitimate sides, the Ethereum upgrade had widespread support and was only opposed by self-interested miners.Related: Biden is hiring 87,000 new IRS agents — And they’re coming for youAnother example would be when EOS froze the Ethereum-based EOS token and moved the holders to the EOS mainnet. The continuation of the coin on the EOS network was not viewed as taxable, as rights were simply teleported to another chain with the same ticker symbol. (Crypto exchange traders probably didn’t even notice.)Is the “new coin” always the lesser adopted coin? Is a coin its technology or its community? The IRS likely won’t rule on this before Tax Day in April, so taxpayers and advisors will just have to make the call. But it seems like the choice is clear.Additional considerations for investors and developersTax-savvy Ethereum holders may want to wait and see if Ethereum PoW is adopted before they attempt to access the coins. Accepting them will guarantee taxable income without leaving room for an argument that the fork is a half-hearted fork/farce/scam, like many of the derivative Bitcoin forks in 2017–2018, which had thinly traded values on remote exchanges. If the value of Ethereum PoW drops before an investor sells, it can mean a tax bill that exceeds the value of the asset. (Bitcoin Cash dropped from over $2,500 in value to under $100 in 2018, save for a short-lived spike in 2021). On the other hand, Grayscale Ethereum Trust’s Sept. 16 press release indicates it will claim, sell or distribute proceeds related to the ETH POW coin, so there may be some value to report at the end of the day.Related: Post-Merge ETH has become obsoleteIt takes some doing to claim Ethereum POW that is worth less than 1% of the corresponding quantity of Ethereum. Early adopters often have an advantage in crypto, but a fork is one case where patience could be prudent.Any crypto developers considering a fork should bear in mind that forks always create tax headaches, the severity of which varies based on the rationale for and execution of the fork. Assuming the IRS follows the lead of the crypto tax community again, the Ethereum upgrade provides an example of how to do it right.Justin Wilcox is a partner at the Connecticut accounting and advisory firm Fiondella, Milone & LaSaracina. He founded the firm’s cryptocurrency practice in 2018, providing tax and advisory services to Web3 organizations and crypto investors. He mines cryptocurrencies like DOGE (though he still supported the Ethereum Merge). He holds various cryptocurrencies and NFTs, including coins mentioned in this article.This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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P2E gamers, minors not any safer from the tax man, says Koinly
Modern parents are going to need to keep an even closer eye on their kids’ gaming habits, as some of them may be accumulating a hefty tax bill, according to a crypto tax specialist.Speaking to Cointelegraph during last week’s Australian Crypto Convention, Adam Saville-Brown, regional head of tax software firm Koinly said that many don’t realize that earnings from play-to-earn (P2E) games can be subject to tax consequences in the same way as crypto trading and investing. This is particularly true for play-to-earn blockchain games that offer in-game tokens that can be traded on exchanges and thus have real-world financial value. “Parents were once worried about their kids’ playing games like GTA, with violence […] but parents now need to be aware of a whole new level […] tax complexities.”Saville-Brown said he was approached during the convention by a father of a nine-year-old son, concerned that his boy was “making bank” from P2E games. “The nine-year-old kid…is mining, staking, creating Youtube and TikTok videos to the point that his dad had to bring him here today because he’s generating so much income,” Saville-Brown recounted to Cointelegraph. However, the treatment of P2E game earnings — at least in Australia — can be complex. Koinly’s Head of Tax Danny Talwar explained that in Australia if one is playing a game to earn income — they are considered as “running a business” and could face a “complicated” tax situation, noting: “If you’re a professional gamer, it’s possible that you’re running a business, so you’d be treated under such rules.” This is further complicated as the gamers could either be “playing these games as an investor” or “playing these games as a trader.” According to the Australian Taxation Office, investors are subject to capital gains when they sell their assets, while traders doing the same thing would be seen as “trading stock in a business,” and thus any profits would be treated as ordinary income.Talwar added that if users have “intentions to actually run as a business […] and have a business strategy,” then it will be treated as a business for tax purposes. He brought up the popular P2E game Axie Infinity as an example of a game that might receive business treatment for tax purposes “as people use that game to earn an income.”The tax expert advised that how one “should be treated from a tax perspective, all gets very complicated without guidance.” He added that once you “throw in the other issue of minors under 18” playing games to earn an income and “creating in-game value, that has a marketplace with taxable consequences in doing so that people aren’t necessarily realizing.”Related: Which countries are the worst for crypto taxation? New study lists top fiveA similar situation could play out in the United States. Artav at Law, a U.S. Law Firm, states that complications arise because not “all P2E earnings” are the same. There is a gray area as “what (and how) the game pays the player determines the type of taxes that particular player will owe […] is the income in the form of NFT? Tokens? Staking income? An airdrop?”The U.S. law firm stated that whether it is called a token, cryptocurrency, or virtual currency, a native token is taxed like intangible property and is subject to capital gains tax, which the Internal Revenue Service (IRS) has had “a consistent position on this since at least 2014.”However, if you earn crypto tokens “as part of a play-to-earn game, the value of such crypto is taxable as ordinary income,” it said.
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ECB needs 'globally coordinated regulatory action' on crypto, says official
European Central Bank executive board member Fabio Panetta said lawmakers across the world must decide how to regulate cryptocurrencies based on potential risks.In a written statement for a speech to Columbia University on Monday, Panetta said global policymakers had made some progress in addressing regulatory frameworks on digital assets, but “not swiftly enough to keep pace with the emerging challenges.” According to the ECB official, the world needs crypto regulated based on anti-money laundering and countering the financing of terrorism rules of the Financial Action Task Force, strengthening public disclosure and reporting on regulatory compliance from the industry, and setting up “strict transparency requirements” and “standards of conduct.”One of Panetta’s chief concerns seemed to be how the central bank and lawmakers address the taxation of cryptoassets, describing current requirements as “minimal” and “very difficult to identify tax-relevant activities.” The ECB official proposed taxing cryptoassets based on Proof-of-Work at a higher rate than other financial instruments based on “negative externalities that lead to sunk costs for society, such as high pollution.”“We should bring taxation on crypto-assets into line with the taxation of other instruments and aim for alignment across jurisdictions, given the global nature of the crypto market,” said Panetta. “The introduction of reporting obligations for transactions above certain thresholds, as just recently proposed by the Organisation for Economic Co-operation and Development (OECD), would enhance transparency and combat tax evasion.” Globally coordinated efforts are needed to bring crypto-assets into a regulatory framework, says Executive Board member Fabio Panetta at @Columbia. We must not repeat past mistakes by waiting for the bubble to burst before acting https://t.co/dGo0HV0KmL1/5 pic.twitter.com/2MpmkmtoG4— European Central Bank (@ecb) April 25, 2022According to Panetta, Europe is “leading the way” in bringing cryptocurrencies into its regulatory purview, while the United States is working to supervise crypto service providers over perceived risks. He pointed to the Regulation of Markets in Crypto-Assets, or MiCA, as a step toward creating a “harmonised European approach” to crypto as well as the global authority Financial Stability Board cooperating with other financial regulators.“We need to make coordinated efforts at the global level to bring crypto-assets into the regulatory purview. And we need to ensure that they are subject to standards in line with those applied to the financial system […] We should make faster progress if we want to ensure that crypto-assets do not trigger a lawless frenzy of risk-taking.”Related: ECB executive board member talks about current state of digital euro CBDC researchThe ECB has been working on the development of a central bank digital currency, with legislation on a digital euro expected in 2023. ECB president Christine Lagarde has previously hinted the central bank could roll out the digital currency by 2025.
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Tax expert says buying crypto is not a taxable event
While many refer to crypto as the “Wild West,” some believe that this may only continue for a little longer.Thomas Shea, crypto tax leader at EY Financial Services, told Cointelegraph that taxation for crypto is an evolving area and new regulations may be implemented soon. “There is new legislation that will require reporting for at least some crypto transactions and when those rules go into effect there will be significant changes,” says Shea.The EY executive notes that with the increased popularity of crypto, lawmakers are continuously exploring how to generate revenue by taxing and regulating digital assets.“We’re seeing certain jurisdictions develop regimes, rates, and reporting unique to digital assets. In the U.S., we’re seeing digital assets being subject to rules and reporting typically limited to securities (and not property).”While not many may appreciate the taxation of their crypto assets, understanding the changing tax impacts associated with crypto is crucial according to Shea. The tax expert notes that market participants need to be aware of the “scope of their transactions that potentially trigger a taxable event and the associated reporting requirements.”According to Shea, buying or selling crypto influences whether it’s taxable or not. Purchasing crypto with fiat and any unrealized appreciation are not taxable events. However, the tax executive notes that selling your crypto is a taxable event. He explains that “the gain or loss is generally capital in nature” and this could be taxed.Even if a holder exchanges their crypto for other assets like Bitcoin (BTC) or Ethereum (ETH), the EY executive notes that this gives users a “taxable event and are required to report gain or loss on the disposed crypto.”The same applies to nonfungible tokens (NFTs). “If you purchased an NFT with fiat, no taxable event,” says Shea. However, purchasing NFTs with crypto is treated very similarly to a crypto-for-crypto exchange. “The gross proceeds less your tax basis in the asset, generally including any associated fees/costs,” says the crypto tax expert.The EY executive also urges people to seek the counsel of proper advisors once they are aware of their tax obligations.“In an industry in which technology serves as the architectural framework, having an advisor that has an accompanying technology solution and understands your goals, will enable you to make the best decisions possible to minimize your tax burden.”Related: How are cryptocurrency taxes reported?Meanwhile, in Thailand, crypto traders are reportedly exempt from the 7% VAT on authorized exchanges. Traders within the country will also be able to offset losses against gains annually.Back in February, the Indian government proposed a 30% income tax on crypto revenue. However, many opposed the proposal as a 30% crypto tax is almost double compared to corporate tax rates hovering at 16%.
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Portugal slowly becoming a ‘haven’ for European Bitcoiners
While Switzerland holds the spotlight for being the most crypto-friendly jurisdiction in Europe, Portugal is picking up the pace. Indeed, the republic offers more than just quality of life improvements for Bitcoin (BTC) owners, including an attractive fiscal environment and a growing Bitcoiner community.Cointelegraph recently interviewed the Bitcoin Family, who recently relocated to Portugal, learning that there was more to the move than pursuing “300 days of sunshine” and “cheap coffee.”Didi Taihuttu, father and husband to the Bitcoin Family, first spoke to Cointelegraph six years ago. In 2016, he rose to crypto fame after selling all his family’s possessions and going all-in on BTC. Although Taihuttu’s larger-than-life persona grabs the headlines, plans for Portugal’s take on Bitcoin Beach and budding Bitcoiner communities give rise to a pro-Bitcoin Portugal, supported by crypto-friendly tax laws and a low cost of living.Portugal’s Bitcoin-friendly beginnings kicked off in earnest six years ago. A 2016 law by the Portuguese tax authority ruled that because cryptocurrencies are not considered currencies, they are not legal tender in Portugal and are, therefore, untaxable.For Taihuttu, the Bitcoin community has since ballooned, and there are “a lot of them” on Cristiano Ronaldo’s home turf. He told Cointelegraph:“I know the big ones (Bitcoiners) live in Portugal already. They are anonymous. They are not like me out there, but they already are here. They are spending their money on houses; they are spending their Bitcoins on everything.”Merchant adoption is indeed on the march: Some Portuguese residents can pay for their energy bills in BTC, while Spanish startup BitBase is bringing more Bitcoin ATMs and stores to major cities. Coinmap cites there are already 57 merchants and retailers just in the Lisbon area accepting Bitcoin. BTC-only businesses are also spawning out of the Iberian nation. John Carvalho, CEO of Synonym, recently moved to Portugal, and Aceita Bitcoin, or “Accept Bitcoin,” a nonprofit group of BTC enthusiasts, is picking up steam. Tiago Vasconcelos, the Bitcoiner behind Aceita Bitcoin, was inspired by El Salvador’s Bitcoin Beach experiment. He’s set his sights on making Bitcoin Lightning payments widely accepted in his homeland.He told Cointelegraph that he is “hoping merchants take the challenge I sent out to experiment having Bitcoin as a payment option for the summer,” adding that Portugal is “very friendly” to Bitcoin. Vasconcelos explained: “Portugal is not taxing crypto, and this may be the best time, especially for the people, to start knowing and interacting with the technology and get exposed to the best savings account they’ll ever have.”Taihuttu joked in his interview with Cointelegraph that there’s an opportunity for Bitcoin to become legal tender in Portugal. “It’s already money in El Salvador, probably soon in Honduras — and you know — hopefully, very soon in Portugal because I think Portugal has all the ingredients.”While legal tender might be a way off, the Portuguese Blockchain Association has recently stated that the regulation of crypto assets is important, but it should not “castrate” evolution. Matt Koller, co-founder of Swiss company Pocket Bitcoin, shed light on the evolving regulatory landscape. Koller explained to Cointelegraph that Portugal’s favorable stance on Bitcoin capital gains is “unlikely to change soon.” In his view, the “outcome of the legislative election in January 2022 suggests that it is most likely not going to change for the time being.”Related: Mercado Bitcoin operator acquires Portuguese crypto exchangeHe shared with Cointelegraph why many Bitcoiners have chosen a new place to call home:“Besides having an advantageous legal framework for those interested in magic internet money, the 300 days of sunshine, the lovely Portuguese people and culture as well as the outstanding cuisine certainly also play their part.”Plus, in light of Portugal’s “free zones” for tech development, Cointelegraph reported that Portugal effectively doubled down on its crypto-friendly position in 2021. The country is actively facilitating research activities for blockchain and crypto companies. For Taihuttu, moving to Portugal is a no-brainer. “Portugal should become the new haven for Bitcoiners,” he revealed in the soon-to-be-published interview.
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India to introduce 30% crypto tax, digital rupee CBDC by 2022-23
In a speech discussing the budget for 2022, Indian finance minister Nirmala Sitharaman announced the launch of a central bank digital currency (CBDC) by 2022-23 as means to boost the country’s economic growth. Sitharaman highlighted the need for digital inclusion across numerous business verticals while announcing the fund allocation set in the Union Budget. Speaking about the launch of a digital rupee, she added that the introduction of a CBDC will provide a “big boost” to the digital economy. She also highlighted the possibility of a more efficient and cheaper currency management system made possible by digital currencies.“It is therefore proposed to introduce digital rupee using blockchain and other technologies to be issued by the Reserve Bank of India, starting 2022-23.”Complementing the launch of a digital version of the Indian rupee, Sitaraman also proposed the introduction of a 30% crypto tax that targets all transfers of virtual digital assets. She suggested:“Any income from transfer of any virtual digital asset shall be taxed at the rate of 30%. No deductions in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition.”Any income from transfer of Virtual Digital Asset shall be taxed at 30% : FM @nsitharaman#Budget2022 – 2023#AatmaNirbharBharatKaBudget pic.twitter.com/J88YTIGPz5— All India Radio News (@airnewsalerts) February 1, 2022The finance minister also highlighted that any losses that occurred while transacting digital assets cannot be used as compensation against any other income source. In other words, investors will not be able to show losses or hacks of cryptocurrencies to offset taxation on profits. In order to keep track of crypto investments in the country, Sitharaman further proposed to implement a tax deduction at source (TDS) of 1% above a yet-to-be-determined threshold.Related: Indian parliament’s agenda includes crypto training session, leaves out bill banning digital assetsLocal Indian media publication Lok Sabha highlighted that a parliamentary research group has organized a crypto-focused training for tomorrow, Feb. 2.Excerpt from Jan. 31 Lok Sabha publicationAs Cointelegraph pointed out, the legislative business calendar for the lower house of parliament no longer includes a bill that could potentially ban crypto in the country.Previously, published texts of the bill propose banning “private cryptocurrencies” in India while retaining use of “the underlying technology of cryptocurrency.”
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Korean crypto investment firm Hashed reportedly under tax investigation
Crypto investment firm Hashed is currently under investigation by the National Tax Service (NTS) in South Korea according to local media.The 4th Bureau of Investigation from the Seoul Regional Tax Office, which is handling the investigation, is best known for conducting investigations into tax evasion and slush fundraising. A slush fund is a pool of funds raised through undisclosed means and set aside for undisclosed purposes.On Dec. 7, local media reported that the exact nature of the investigation is not clear. An official from the regional tax office told reporters that although they could not confirm the exact nature of the investigation “intense investigations on small businesses without any prior notice are not uncommonly related to slush fundraising or tax evasion on the part of the company’s CEO.”The investigation began early last month and is set to conclude no later than the end of Feb. 2022, just a few days before the South Korean presidential election takes place on March 9, 2022.Hashed is one of South Korea’s highest-profile crypto investment firms. It was founded in 2017 by Simon Seokoon Kim, Ethan Kyuntae Kim, and Ryan Sungho Kim, all three of whom are technically listed as CEO, or heads of the company.Hashed launched its $200 million Venture Fund II on Dec. 1, a year after it launched a $120 million Venture Fund I. The latest fund will focus on Web3 growth opportunities.Related: 2021 ends with a question: Are NFTs here to stay?Hashed’s investment portfolio includes over 80 companies including several crypto networks such as Klaytn and Cosmos, DeFi protocols such as MakerDAO and Synthetix, and NFT brands like The Sandbox and Axie Infinity. The South Korean government and the NTS have been increasingly monitoring the crypto industry throughout 2021.However, some good news emerged following a year-long battle among lawmakers — the government passed a bill on Dec. 3 that postpones levying any tax on crypto trading for a year. When the tax comes into effect, in January 2023 instead of 2022, traders will pay 20% of any gains made over $2,100.
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