As a crypto investor, it is good to know how the tax authorities work when it comes to investing in bitcoin and altcoins (alternative coins / tokens). The crypto market is a relatively young and unregulated asset class, but make no mistake. “A mistake can cost you dearly,” Business Insider reports.
In this article, you can read about your annual tax return and investing in cryptocurrencies.
1. The tax authorities will (soon) check if you own crypto
Where the market was previously (even) less regulated, more and more rules are being introduced. The key question now being asked by the US Securities and Exchange Commission (SEC) is whether certain cryptocurrencies should be classified as securities (financial products traded on a stock exchange, including stocks and bonds). If so, the crypto market will have to deal with many more rules.
The European Union also wants stricter rules. You can read the European Commission’s bill here. This proposal mentions, among other things, stricter regulation with regard to anonymous cryptocurrencies and transactions. In addition, cryptocurrencies will soon come under the European exchange of tax data. This means that in the future, your cryptocurrencies may already be listed on the pre-filled tax return. It remains to be seen whether this is possible in all cases and how they will do so with ‘decentralized exchanges’.
Tax does not consider the reporting of assets in crypto as ‘disguised assets’. That means they can impose a hefty fine. In some cases, they go on to prosecute. The tax authorities themselves receive the data from certain trading platforms. “However, the IRS does not want to disclose from which trading forums other than eToro it receives information,” Business Insider reports, according to a memo from tax consulting firm Tax at Work. Of course, you can always object to the tax assessment to gain access to your case.
Box 3 or Box 1?
If you invest in crypto, this falls under the capital tax in box 3. The tax-free capital in 2021 is 50,000 euros or 100,000 euros with a tax partner. As soon as you exceed this amount, you must include it in your tax return.
But sometimes crypto investments fall under Box 1 and are therefore taxed more. In this case, for example, it is revenue that you derive from mining coins. Brief explanation: miners do this by validating blockchain transactions with special hardware. Random computers calculate whether the transaction is correct, after which the miner receives a fee. You can see a blockchain as a database (chain of blocks) in which transactions are stored.
4. It informs Tax itself about cryptocurrency mining
Tax adds the following: ‘Mining requires a lot of computer capacity. The costs associated with this will often be so high that there will not quickly be an advantage. It also plays a role that you can only mine a limited amount of crypto per day. ‘
For this reason, you do not (always) need to disclose the benefits of the mining itself. ‘But it changes if your dividend is higher than your cost. In that case, it may be income from other work or profits from business, and you must state your income in your tax return. ‘
5. What value do you enter under your statement?
The value of your crypto-wallet can fluctuate a lot. The crypto market is very volatile. When filling out your tax return, use January 1 as the reference date. “The most practical thing is to use the price on January 1 at 00:01 that year,” Business Insider writes. ‘According to Tax at Work, you can choose which course you want to use. However, it is important that you use the same grant and the same time each year. ‘
Minors with crypto wallets
If you have minor children who also own cryptocurrencies, this money will be added to your assets. So remember this. This means that you may be able to exceed the tax-free allowance more quickly.
Radar broadcast on crypto
Radar showed in the broadcast on September 13, 2021, how easy it is to create a worthless token. Just to use some terms: ‘DYOR’ and do not fall for ‘Pump & Dumps’. You can see how easy it is here:
Look for! That’s how simple it is to make a crypto token
This is not financial advice. Investment involves risks.