Cryptocurrency is a type of digital asset that uses cryptography to secure and verify transactions. It’s decentralized and uses cryptography to control the creation of new units. Currently, there are two types of Crypto tax – cryptocurrency capital gains tax and cryptocurrency income tax. The IRS has been releasing guidance on how these should be reported. The way that cryptocurrencies work, it is hard to determine whether one owns them or not until they are spent leaving an opening for many people who have made money off investments in cryptocurrencies not to include that income in their taxes for years at a time until they finally sell their assets. The IRS considers cryptocurrencies to be property, not currency, and that means crypto investors are subject to taxes. Cryptocurrency taxation is in its nascent stages but it will eventually follow the same rules as any other country’s taxation.
The US and Canada are the two countries that have introduced tax laws pertaining to cryptocurrency. Cryptocurrency is not classified as a currency, so it falls under income and capital gains taxes. In the US, there is no legislation on crypto taxation yet. However, the IRS has ruled that taxpayers will be required to report their crypto earnings as long as they meet certain conditions. The same applies in Canada where crypto taxation needs to be implemented in order to make it easier for businesses, citizens, and governments to comply with AML/KYC guidelines. Cryptocurrencies have been in the news for a while. As cryptocurrencies are a relatively new model, it is difficult for governments to regulate them and find ways to tax them.
The crypto taxes framework proposed by the European Union Commission has been met with mixed reactions from governments and businesses alike. On one hand, it may be beneficial for business to have clearer options on how they should pay their taxes going forward. On the other hand, some governments accept that they can’t control these assets and need to work on legislation surrounding cryptocurrency taxation instead of trying to get an outright ban on cryptocurrency trading in their country. The main concern for the IRS is how to handle crypto taxation. Taxes on cryptocurrency are handled differently from other types of transactions. The U.S government has not yet created a concrete set of rules on how they should be taxed because there are too many unknowns when it comes to cryptocurrencies.