Like in the Medieval ages and more specifically during Assize times, citizens in major western countries are facing the [un]pleasant tax season.
More than 600 years ago that used to mean a soldier/messenger from the King or Queen standing in the middle of a public square unfolding a paper roll and shouting how much each of the landowners own the Crown. The owners must pay immediately, or they will feel the weight and force of the Court of the Exchequer.
In 2022, the Assize times mean the period between January 24th and April 15th. The holder of the rolls is now a web form containing the Tax brackets for the tax year and the court of the Exchequer is the IRS, Her Majesty Revenue Service, The Australian Taxation Office, or the equivalent depending on where you live.
As you can see there might be a lot of changes in the method but none in the essence. That is particularity true specially for all of us that live and work in the crypto industry. I have been asked numerous times how crypto currencies are supposed to be taxed if so.
This article does not represent any legal, financial or tax advice of any sort. You will need to seek help from your local service provider, but I will say a few general things about the topic.
Cryptocurrencies at least in the United States are recognized as property and not as currency, that means that you are only liable if you realize a Capital Gain when disposing a holding previously acquired by you. However, if you buy say BTC and hold that position beyond December 31st, you won’t need to pay anything technically regardless if the value increased because you haven’t executed a Capital Gain Event. In plain English, a sale or disposal of that holding.
A different story is when you received cryptocurrencies in the form of payments for any service you provide or any good you may be selling. In this case you should recognize the Income at fair value (typically at the exchange rate of the day of receipt) and treat it as normal fiat currency. (Although reporting it on its particular field in the 1040 form).
A potential exception to that rule and again, only in you are resident of the United States is if the Income in cryptocurrencies is in the form of Mining or Staking Rewards. Logic says that both activities would have been considered normal Income, well until a couple from Nashville Tennessee decided to challenge the IRS in court.
Luckily for them the IRS decided to settle the matter and offer a refund for taxes paid. Luckily for us, the couple rejected the offer and continue with the court challenge. Why luckily for us? Well if the couple would have accepted the offer, it would have been confidential settlement with no binding or legal value for any case that may arise in the future.
However, if the case is decided in Court, the Judges will normally be required to issue a reasoning and I am sure that the Commercial Legal publishers will be waiting anxiously to put those pearls of wisdom in a report for all of us Legal and Finance professional in the crypto industry to enjoy and keep nearby just on case.
Yours in Crypto