Lately, there have a lot of exciting news and benefits revolving around the virtual currency, commonly called the cryptocurrency. Some of the commercial taglines include:

  • The entire digital currency system is very transparent
  • Investing in cryptocurrencies has resulted in huge returns
  • The value of digital currencies is growing exponentially
  • It is one of the safest means to carry out monetary transactions in today’s world
  • The system operates based on a decentralized line of control, making it very unique
  • The network where financial transactions are carried out is highly anonymous and very secure
  • Although the virtual currency market is highly volatile, the value of cryptocurrencies remain high

All these are the known facts and few of the different ways to describe cryptocurrencies. However, what many investors or amateur traders do not know is that whether cryptocurrencies offer any tax benefits or whether it will contribute to more tax. Therefore, if you are interested to know the relation between cryptocurrencies and government taxes, continue reading.

  • In many countries, cryptocurrencies are not classified as a trading income. Hence, the returns received from cryptocurrency trading are not taxed. Thus, traders get to take home all of the returns without any cuts, which is a plus.
  • However, some agencies and financial institutions are finding ways to take a tax cut from the returns earned by trading cryptocurrency based on some factors such as the kind of organization dealing with cryptocurrency trading and the degree of skill involved.
  • Moreover, there are certain guidelines that state that traders who sell cryptocurrencies will be made to pay the capital gains tax, which could be 18% or 28% based on which slab of income the trader falls under.
  • There is no tax cut for those who buy cryptocurrencies or receive cryptocurrencies as a gift. However, users should create records of every buying and gifting scenarios for future tax calculations
  • Capital gains tax will apply even if you sell some of your cryptocurrencies to buy other cryptocurrencies. This is because of the varying prices of the cryptocurrencies at the time of buying and selling.

Thus, the rules of whether to tax or not to tax the returns earned from cryptocurrency trading are still under debate. Alternatively, you could consult a good tax adviser to help you audit your investments and calculate your taxes. However, new traders must seize the current profitable growth of cryptocurrencies and invest in them to earn high returns.