Six things you need to know about crypto and the tax authorities: ‘One mistake can cost you dearly’ – Radar

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. “One mistake can cost you dearly,” reports Business Insider.

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 used to be (even) less regulated, there are more and more rules. 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 an exchange, including stocks and bonds). If so, the crypto market will have to deal with many more regulations.

The European Union also wants stricter rules. You can read the EU Commission’s legislative proposal here. Among other things, this proposal mentions a stricter regulation with regard to anonymous crypto wallets and transactions. In addition, cryptocurrencies will soon fall under the European exchange of tax data. This means that in the future your crypto holdings may already be listed on the pre-filled tax return. It remains to be seen whether it is possible in all cases and how they will do it with ‘decentralized exchanges’.

2. Disguised power

Tax does not consider reporting assets in crypto as ‘disguised assets’. This means that they can impose a hefty fine. In some cases, they proceed to criminal prosecution. The tax authorities themselves receive the data from certain trading platforms. “However, the IRS does not want to specify which trading forums other than eToro it receives information from,” Business Insider reported based on a memo from tax consulting firm Tax at Work. You can of course always object to the tax assessment in order to gain access to your case.

3. 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 about income that you get from mining coins. Brief explanation: miners do this by validating transactions on the blockchain 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. The Tax Office itself states this about cryptomining

Skat adds the following: “Mining requires a lot of computer capacity. The costs associated with this will often be so high that there will not be an advantage quickly. It also plays a role in the fact that you can only mine a limited amount of cryptocurrencies per day.’

For that reason, you do not (always) need to disclose the yield of the mining operation itself. ‘But that changes if your profit is higher than your costs. In that case, it may be income from other work or profit from business, and you must state your income yourself 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 you complete your tax return, you must use 1 January as the reference date. “The most practical thing is to use the price on January 1 at 00:01 of the relevant year,” writes Business Insider. ‘According to Tax at work, you can choose which course you use. However, it is important that you stick to the same grant and the same time each year.’

6. Minors with crypto wallets

If you have minor children who also own cryptos, this money will be added to your assets. So remember this. This may allow you to exceed the tax-free allowance sooner.

Radar broadcast about crypto

In the September 13, 2021 broadcast, Radar showed how easy it is to create a worthless token. Just to use some terms: ‘DYOR’ and don’t fall for ‘Pump & Dumps’. You can see how simple it is here:

Look for! That’s how easy it is to create a crypto token

This is not financial advice. Investment involves risks.

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