Why do we need to pay taxes on Bitcoin?

bitcoin taxes

Bitcoin is decentralized, but not anonymous. For it to be legalized as a monetary product, it has to be regulated. The regulation comes with a price.

A piece of land is a natural resource, but why do we pay capital gains on the sale of it?

The same rule applies to Bitcoin. Thus, some treat it as one of the financial products that fit into the regulatory framework and considered as property in many countries. That’s how IRS or ATO or HMRC sees it.

Therefore, whether one discloses or not, government authorities can track down addresses holding bitcoin to individuals and come back at them if they trade or make profits off Bitcoin – it could be in Fiat or just trading crypto to crypto.

There are firms that specialize in analyzing on-chain and off-chain transactions that help authorities achieve this. That’s one reason why many individuals who trade cryptocurrency got letters and notices for not reporting, under-reporting, or misreporting their crypto holdings.

Absence of regulation on bitcoin taxes it’s not a yardstick for tax evasion

So you may wonder: this is for countries with clear-cut rules on Bitcoin taxes. What about those of us living in countries that haven’t said anything about Bitcoin or any other cryptocurrency? Do we also have to pay taxes? The short answer is yes.

The long answer? It depends on how you earn your Bitcoin. But the biggest question is, does your country have income tax laws? Do sole proprietors and individual LLCs pay tax? Then you’re in to pay tax on your Bitcoin activities.

Income tax, tax on businesses, as well as taxes on independent contractors or freelancers are tax laws that will tie you down even if your country doesn’t explicitly state that Bitcoin investors or miners should pay tax.

For example, if you happen to take salary/wages through Bitcoin. Or if you’re providing freelance services that allow you to take BTC as payment, you’re subject to pay Bitcoin taxes on the income you earn in many countries. Your government doesn’t have to state that you should pay taxes. Therefore, so far as you’re earning income from your Bitcoin activities, you might fall under an income tax bracket or a business tax bracket depending on how you participate in the BTC investment community.

What you should note is that it’s beneficial to your activities to not have issues with authorities when it comes to bitcoin taxes.

IRS has provided updated guidance on what’s considered an income, what’s a capital gain or loss in their latest FAQ. It is always in our best interest to comply and pay the taxes to be safe.

Read: What are the penalties for not paying crypto tax? – And how to stay clean

…In this world, nothing can be said to be certain, except death and taxes…

Benjamin Franklin.

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