[Vlog] Lets talk about the elephant in the cryptocurrency room.... Taxes

Everyone likes to talk about their cryptocurrency of choice going to the moon... what I don't hear mentioned is that un-welcomed passenger that is likely to be hitching a ride on those space voyages, the taxman.

In this morning's blog I talk about taxes as it's been on my mind recently.

Clear as mud


***** Caveat - I'm not a tax adviser nor a financial adviser, I'm just a simple guy trying to make sense of this tax nonsense! *****

In the UK, the tax picture is murky. It's tempting to think this is specific to cryptocurrency however I believe this is the nature of tax law. If taxes were straight-forward we wouldn't need tax advisers and accountants.

The 'tax authorities' are just human beings like me and you and thus are trying to unpick tangled tax webs that have either been created by others or they've created themselves. They aren't 'gods' and will often know less about your activities than you do. So part of the process of paying tax will likely be to educate the tax man as to the nature of your activities. Don't forget this and don't just bow to handing over as much money as you can to avoid going to jail.

The boring stuff



I'm in the process of trying to work out the tax status of my investments in time for when I need to do returns. To my mind there are a number of ways cryptocurrency activity can be framed. Some views are advantageous to cryptocurrency holders other not so.

Here is my broad understanding of the landscape (in the UK):-

  • 0% "It's all gambling!" There is a school of thought that says that cryptocurrency investing is so speculative that it is akin to gambling. Winnings from gambling are not taxed in the UK. Indeed there are some in the UK who are attempting to declare their cryptocurrency gains as gambling winnings. It will be interesting to see how this plays out however I wouldn't hang my hat on the HMRC treating all crypto gains as gambling winnings. You'll still need to frame your argument and present your facts appropriately. This is where getting a good adviser could help. My thoughts are that, eventhough punters don't get taxed through gambling, governments are used to getting their pound of taxes from gambling establishments (casinos, bookmakers etc.), I'd caution against thinking they would wash their hands completely of taking taxes from cryptocurrency activity. However many of us have taken a leap in the dark with this technology. Made losses, sometimes year-on-year (e.g. from 2014 to 2016) without seeking tax relief nor clear tax advice... we've lived (and still live) by the motto that it can all go to zero at any time. If government's are going to tax the good days, are they will to provide tax relief in hard times?

  • 20% It's capital gains baby! If you bought bitcoin for $500, did nothing with it for a few years and sold it for $10,000 (in the UK), you’d most likely be liable for capital gains tax (CGT) unless you can make the ‘gambling’ argument above. What isn’t clear (at least in my mind) is what happens if you didn’t just leave your money in bitcoin. What if you bought some Ethereum, bought and sold some Dash, lost some Litecoin when Mintpal collapsed. Bought some shitcoins that went to zero? What if all your $500 bitcoin purchase has ballooned to $100,000 with some savvy/ lucky investment decisions? Do you simply pay capital gains on the $100k. To what degree do you need an audit trail on your activities in between the $500 going in and the $100k going out so as to not fall foul to any suspicion of money- laundering? To make life easy on everyone there is an argument to apply CGT based on fiat in and fiat out but who know how governments will approach this area, I've yet to get a clear and definitive answer.

  • '40% You're paying yourself, that smells like income' There is some activity around cryptocurrency that is difficult to quantify. For example posting, voting and commenting on Steemit. I have a personal bug-bear when people refer to upvoting themselves as "paying themselves". It also implies that you own a company that you're drawing income from putting you squarely in the realm of income tax liability. When actually you are not paying yourself or anyone else, when you upvote. You are attempting to have a say in how Steem rewards on the Steem blockchain are allocated. Your upvotes can be counteracted by upvotes on other posts and downvotes on your votes. Therefore any rewards allocated to you are subject to the consent (implied or explicit) of the community as a whole. While 'being able to pay yourself' is a nice sales pitch to those trying to make a quick buck, it is inaccurate and worst sell could have adverse tax implications if that's the rhetoric the taxman is being sold.

  • Thresholds/ Relief - Other things to consider are the thresholds and relief. For example, in the UK, CGT has an annual exemption. It may be that the amounts your earning per year are small enough not to be taxed. However it is better to know where you stand upfront than to be hit with a tax bill on money already spent.

Strict liability



If you have ambitions to make life-changing money out of cryptocurrency; you should consider the strings your government attaches to wealth building. Regardless of your personal views on it, tax is a strict liability obligation in most jurisdictions. Evasion often comes with a prison sentence attached.

If you’re anything like me, it’s easy to get carried away with the figures that are fluctuating daily in your crypto portfolio. However that is a gross figure. I’ve yet to see the app that factors in tax and other expenses. Hopefully this post/ vlog will provide some food for thought!

Steem on.

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@nanzo-scoop

I remember talking about this matter at Steemfest with you. big deal indeed. thank you for bringing it up. the burden is on us as individuals, at least in the US, and everyone should pay taxes on profits unless you are in a jurisdiction where you don't need to (e.g. "tax safe heaven").

In the US, you can use the same methodology used to account for stock gains. Hold more than a year, it's long term cap gains. Hold for less you pay short term cap gains. Trading one coin for another creates a taxable event. Keep records and give them to a CPA.

One of the major big picture things I post about is mass adoption for the technology and more generally the new business models it allows. If the pioneers do not pay attention to basic things such as paying taxes, we will have an uphill battle scaling. Such battle will be far more detrimental in the long run than doing the right from the start. For Steemit it is gaining market share on the internet, basically competing with Reddit, Medium, news site, Insta, etc. Most of these huge corporation pay little tax cause they had teams of tax attorneys behind them. Corporations make the money, can hire talent to optimize their corporate structure for the profit of the shareholders. Not problem there at all. Here, since the user is the one getting the revenue, it is up to the user to properly structure themselves. Absent a team of tax counsels, you have to pay taxes. If we go further down this path, one could argue that Steemit is better for the tax man than people using other sites. Thoughts on this anyone?

On the other hand, if content producers using Steemit pay taxes, uncle Sam will likely be happy and not interfere with the growth. remember that, anyone can query the public chain and see who got what and when.

Guys just pay your taxes don’t be stingy …😅👀✌🏼🛫

nobody want to think about taxes tony,, its scary , resteemed

Great topic..People would just move their money elsewhere. same thing happened with China and people move out to another country. Binance was a chinese company and now they are in Japan (with operations in several other countries).

this is the same with tax avoidance issues. you raise the tax somewhere, corporations would just move their assets elsewhere

I guess tax avoidance is an art... tax evasion is a crime. The question is whether you want to play that game. Particularly if you're acting as an individual rather than a company.

Ah, it's a philosophical distinction in the end.
Evasion is rooted in the intent to deceive, with a willful desire to circumvent the law, irrespective of the intent of the law. The evader cares not what the law says, but only that they not be caught.

Avoidance is based upon a careful analysis of the law, always with an intent to comply. The intent is to be legal, to use the provisions of the law in a clever but compliant manner. There is no deception, no willful desire to circumvent the intent of the law.

Unfortunately, the vagaries of language and the complexities of transactions leads to a fuzzy boundary between avoidance and evasion, where the distinction sometimes turns on intent.

Great post! Taxes are to be implemented this year in the US and is causing a lot of confusion already!

As taxes roll out I can see more people using Privacy coins (XMR.DASH,ZEC etc) to hide gains. <- Do you agree with this statement?

Interesting comment! What's the difference to these coins? In order to get paid out in fiat you still need to be registered on an exchange! So the tax-man got you anyway... Correct me if I'm wrong!

You are correct but how can the government tax you on something they know nothing about?

At least here in the U.S. we are taxed on what we report. No report = no tax .

As far as getting paid:
-One could trade peer to peer. localbitcoins.com is one that comes to mind(no tax)
-Use a "crypto payment card" bitpay ,Uquid is another.
If you do a little digging you can find a few different ways besides using an exchange.

Tax evasion is tax evasion and comes woth severe consequences. It's no different to trying to evade tax using cash in hand.

Just as an aside privacy coins are not about avoid taxes. Hopefully they aren't perceived that way as the point of privacy coins is to be able to pick and choose who we share details of our transactions as we can do off-blockchain (to a certain extent).

Compliments of highimpactflix here on steemit on a reward if you can find the law where it says one must pay taxes. Pretty interesting. Yes, I pay my taxes, doesn't mean I agree. If I don't men with guns will come to my house and throw me in a cage until I do.........sad.

Thank you for your very detailed answer.

I'm in no way encouraging tax evasion but I think with anything there will be misuse. It will be very interesting to see how everything unfolds.

"Privacy" is an endangered species.

Well anything can happen !! We can only assume. What if people start transactions only in coins and no one ever takes out cash ever !! What if crypto currency becomes the only currency? I wonder sometimes what the world would be like without any taxes !! ‍♀️

No one can catch anyone that way.

F5B82735-6017-4EA1-A84A-0E5638228B20.png

I like you, and the way your comments attract my eyes! Allow me to follow you, and please welcome to my blog!

THANks dear 😃

Always welcome!

I'd imagine the nature of the transactions will determine the applicable tax. I don't think that governments are going to abandon taxing people just people they are using crypto. But nice try!

They cant find it out whose money is going where. Isnt it ?thats what the concept of crypto is based on. I will always hope for the best 😃

Only 2 things are certain in this world. Death and Taxes main-qimg-f5448dc7d3f4a8cf18a933acab84262f.png

Well... i think every well minded citizen ought to pay taxes.. its for the benefit of all..but is the government really using it for oir benefit or theirs

you just educated me on something i never knew @nanzo-scoop you say that you are a Tax Adviser or Financial Adviser..but i think you are gonna make a good one or career out of it.
thanks

It is not paying this exorbitant taxes that bothers me sometime but are we getting to see the value of the money we laboured for. Thanks for sharing this post

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