When talking about tax laws and cryptocurrencies, we have to ask ourselves if mentioned topics have anything in common. According to numerous individuals tax law symbolizes extreme regulations forced by a focal government office. This is as opposed to cryptocurrency and the related blockchain innovation, which represent a decentralized, free and unregulated society. The unpredictability of these two topics expands if the one endeavors to impose tax laws on the cryptocurrencies. But nowadays, cryptocurrency is much the same as some other asset class when tax season in ongoing. Crypto taxes are very complicated, resulting in a very low number of people that actually file taxes. At the other hand, there are people that consider cryptocurrency as a way to transfer cash illegally, which implies evading crypto taxes completely.
In U.S., as per the IRS’ Guidance on Virtual Currencies, cryptocurrency is not a currency, but rather a prpperty. This implies you need to file for tax of capital gains. We divide capital gains taxes on two categories: short-term and long-term. Short-term implies that the digital asset, in this case, cryptocurrency has been held for a less that a year before any action (trading, selling, etc.) Long-term, on the other hand, indicates that the cryptocurrency was held for longer than one year. Moreover, the rates vary on the country and the tax brackets; taxes on long-term are generally lower.
Furthermore, cryptocurrency can be liable to income tax. This is the point at which the person is paid in cryptocurrency by a business, and then, the cryptocurrency is categorized as earnings. This means that the person would have to pay the same sum in cryptocurrency as he/she would pay in the currency it receives the paycheck. This implies cryptocurrency income taxes are splitted into a similar seven IRS tax sections, extending from 10 percent to 37 percent. All in all, workers and businesses need to report cryptocurrency earnings and retentions as they would with any other currency.
Also, you need to report gains and losses on every single individual exchange to the IRS. In particular, trading a cryptocurrency for another, changing over it back to a currency or spending cryptocurrency, are taxable occasions.
When in Europe, the countries are following a decentralized way to deal with crypto principle. Every country has a different tax law on cryptocurrencies, depending on how the country classified the cryptocurrency as. In the case of United Kingdom, the cryptocurrency is treated as an asset or private money, where you have to pay capital gains taxes, but sales taxes are not applicable. In Germany, the cryptocurrency is classified as a private money, which makes Germany a tax-haven for the crypto market. But, if the crypto is held short-term, then a progressive income tax of up to 45% is applied. In Switzerland, a place that is known for cryptocurrencies, the digital asset is classified as a foreign currency, which results in tax collections (income tax, wealth tax, etc.) The advantage of cryptocurrencies in Europe is that the cryptos sales are free from the VAT.