While data centers can be rendered useless by several factors like connectivity issues, poor weather conditions, and in some places, political pressure,
Blockchains are nowhere nearly as vulnerable. They have thousands, if not millions of computers in their networks that have a copy of the ledger in their storage. Blockchain security breaches are practically impossible given the level of sophistication of the technology.
Unlike traditional systems and databases, an individual can’t modify Blockchain databases, because Blockchain systems need the consensus of the majority of the computers in their networks to make changes.
The ridiculous potential of Blockchain technology has resulted in the top companies and new startups investing enormous sums of money in it. Given how Blockchain technology has proven to be a game-changer, it is useful to understand some of the basics of cryptocurrencies. From crypto to crypto tax.
A brief introduction to cryptocurrencies
It is easy to get confused and carried away with all the information you get on this topic. The constant change in regulations for crypto to crypto tax in different countries can make it challenging to get a grip on the basics of cryptocurrencies and understand them at their most basic level.
In a nutshell, a cryptocurrency is a medium of exchange based on the internet. Its most significant characteristic is that it does not have a central body governing it, unlike regular national currencies like dollars and pounds.
This new payment system works on Blockchain technology. Blockchains maintain the integrity of transactional records and history.
A cryptocurrency is secured by complex cryptographic functions that prevent counterfeiting and double-spending. Since a central authority does not govern cryptocurrencies, they are immune to political manipulation and interference. The most popular and valued cryptocurrency today is Bitcoin.
Cryptocurrency Taxation in the US
According to the IRS, it is compulsory to report all Bitcoin transactions, irrespective of their value. This implies that every American taxpayer will have to keep a record of all transactions done via Bitcoins as they regardless of the type. Plus there are number of free crypto tax calculator, that made reporting of bitcoin tax easier.
It is important to keep in mind that Bitcoins are considered assets, not currency. This means that simple day to day transactions at your local supermarket, for example, will be subject to capital gains tax. Your capital gains tax can be short term or long term depending on how long you have been holding your bitcoin.
When is your Crypto Taxable?
When you sell Bitcoins mined personally to a third party.
When you sell Bitcoins that you’ve bought from someone, to a third party.
When you use the Bitcoins, you have mined to purchase goods or services.
When you use Bitcoins bought from someone, to purchase goods or services.
If you hold Bitcoins for less than a year before sale or exchange, you will have to pay a short-term capital tax, which is equal to the regular income tax rate. However, if you hold Bitcoins for more than one year, your Bitcoins will be subject to Long-term capital gains tax. I
In the United States, people in the 10%-15% income tax rate bracket, owe 0% Long-term capital tax, people in the 25%-35% income tax bracket pay 15 %, and those in the 39.6% tax bracket pay 20% Long-term capital gains tax.
Therefore, individuals end up paying taxes at a rate that is lower than their income, if they happen to have held Bitcoins for more than a year.
Crypto in India
The regulations for crypto to crypto tax in India have always been amorphous. This is primarily because the RBI doesn’t seem to support cryptocurrencies, to begin with. The severe lack of clarity of rules for the same is a clear testament to this.
The Government seems to have taken the RBI’s side on the matter and proposed a ban on cryptocurrencies and related activities. The inter-ministerial committee (IMC) claims to have made this proposition for the following reasons –
Cryptocurrencies possess no intrinsic value and they lack all the attributes of a currency.
All the cryptocurrencies are entirely private enterprises as non- sovereigns have created them.
Cryptocurrencies do not match the vital characteristics of currency and hence cannot serve the purpose of money.
Cryptocurrencies have demonstrated extreme fluctuations in value since the beginning.
The proposal of this ban on cryptocurrency and declaring crypto-related activities a criminal act has resulted in the termination of numerous crypto-related businesses. The future certainly seems bleak for crypto enthusiasts and private companies alike. That said, new crypto laws are expected to be introduced in the parliament’s winter session.
Crypto Tax Tools
We can’t talk about everything from crypto to crypto tax without mentioning crypto tax tools. Filing taxes for cryptocurrencies is a tedious task, and it is what prevents people from investing in cryptocurrencies.
With the rapid increase in the number of cryptocurrencies is the rise in the number of crypto tax tools and software. These tools prove to be an integral part of crypto trading, given how crypto users are required to maintain a list of all transactions and report their taxes. Following are some tools you can use:
Zenledger is known for making the lives of crypto traders easy. Investors can import their transaction data and history and calculate their capital gains.
This software allows its traders to import their cryptocurrency transaction information from the past year from a selection of well-known cryptocurrency exchanges.
Libra Tax is a universal tool that analyzes the client’s crypto-related activities and in turn, estimates their capital gains (or losses). Libra Tax is connected to several cryptocurrency exchanges like Coinbase and Bitstamp .