To start off this post we would like to remind people we are not accountants, financial advisors, lawyers, or government officials. We will not be giving specific advice but rather give some information on the tax status of cryptocurrencies in a few places around the world. This issue was recently brought up again in the United States by a couple members of the US House of Representatives and many of our users have questions about taxation as it relates to bitcoin and digital currencies in general.
Governments all over the world are trying to grapple with the paradigm shift that cryptocurrencies are forcing upon the global economy. Although cryptocurrencies are networks governments can’t control(by design), something almost every central bank has acknowledged, these new crypto-currencies are usually subject to taxation.
Some governments like those in the US and Brazil do not treat crypto-currencies as currencies but rather property or taxable assets. In the United States, where most of our customers live, cryptocurrencies fall under IRC Section 61(a)(3) as taxable property. Taxation of these currencies depend on their use but is more than likely subject to capital gains tax. However if one receives cryptocurrencies as income for goods or services it will be taxed as income upon the date of receipt. For example, employees at Airbitz are compensated in bitcoin for their work and pay income tax on those earnings.
Some governments do treat cryptocurrencies as currency such as the European Union, Australia, and Japan. In Japan bitcoin is recognized as a legal payment method and is exempted from their consumption tax but is subject to their income and capital gain taxes. Some mainstream stores in Japan have even started accepting bitcoin as payment.
Unlike the United States the European Union does not consider cryptocurrencies property but currency. Currently, cryptocurrencies are exempt from VAT/GST taxes in exchanges involving crypto-currencies and fiat monies. However in the Eurozone they’re subject to VAT/GST for purchases on goods and services.
Most countries fall into two main camps, those that treat it as currency and those that treat it as property. Many smaller, less developed nations have no cryptocurrency legal structure or taxation guidelines to speak of and are just starting to move towards some type of legal framework in which to regulate and tax cryptocurrency related activities.
Wherever you live and are subject to taxation, Airbitz is a great tool to use not just to keep your bitcoin safe but to tag your transactions with specific information. In addition, we include by default the fiat value of the transaction at the very moment a transaction is made. This is vital to keeping your tax obligations in order without having to do a ton of digging to figure out what your fiat amounts were post factum.
We also have unique transaction tagging capabilities in our wallet that every user can take advantage of and we would recommend doing so. When going back to review your transactions you’ll know instantly if a transaction was an expense, transfer, income, or an exchange. This will help you figure out your tax obligations fairly quickly.
Your transaction history and data can then be exported from our app for your own personal use and documentation.
Wherever you reside make sure to do your own research because taxation is very personal and usually treated on a case by case basis.
Anyways, happy HODLing!
For those in the United States with more personal questions we recommend contacting our accountant: Jason Tyra, CPA. He’s been our accountant since we were just an idea and has been in the cryptocurrency space advising clients for a few years now. He’s been a lot of help throughout our growth as a company. Thank you Jason!