Cryptocurrency has been an up-and-down market, but with volatility comes opportunity. The market is full of stories of ordinary people who became wealthy off of Bitcoin and other cryptocurrencies because they invested early or at the right time.
Many people who made surprising amounts of money on crypto may not have realized the tax implications of their transactions. That’s led to a situation where many crypto investors have an outstanding tax bill that they may not even be aware of.
Most tax agencies rely on self-reporting, with penalties, fines, and potential jail time for those who don’t report their income honestly, so many may not even know that they owe taxes on their crypto investments.
Realizing that you probably owe the government money from your cryptocurrency transactions can be enough to make you panic. If you are prosecuted for tax fraud, you can face jail time. Even if you only face an audit, the process can become a time-consuming, stressful, and ultimately expensive ordeal.
One way you can deal with unfiled crypto taxes is through Voluntary Disclosure, a program where you refile previous years’ tax returns with accurate information. You must be prepared to pay the taxes you should have in the past, but you otherwise will not face any penalties.
If this sounds like an avenue worth exploring, you can find more information with Crypto Tax Lawyer in Canada. They specialize in cryptocurrency taxes and help investors deal with the Canada Revenue Agency.
If you’re worried about whether or not you actually owe taxes on crypto investments, keep reading. These are the most common occurrences that lead to investors owing taxes on their crypto.
In most countries, including Canada, cryptocurrency is treated like an investment asset. To be exact, it’s treated like a commodity. Any time you sell an asset, you assume either a capital gain or a capital loss. A capital gain is considered income, and part of that profit becomes taxable.
Depending on the frequency with which you trade cryptocurrency, your profits may be considered business income instead, which may lead to you paying higher taxes.
Any time you buy or sell cryptocurrency, you should record the price you paid or what you earned so that you can keep track of your capital gains and losses at the end of the year.
Because most countries treat cryptocurrency as an asset instead of money, buying goods and services with Bitcoin, Ether, and other coins is also a taxable event. Not only will there likely be sales taxes that need to be paid, but it’s also taxed the same way selling your cryptocurrency for legal tender would be.
When you buy something with cryptocurrency, write down the value at the date and time of the transaction, as it will be taxed according to fair market value at the time.
NFTs are treated very similarly to cryptocurrencies themselves. However, NFTs have the unique quality of resale royalties, where the artist or creator of an NFT receives a royalty every time a piece is resold. It’s a useful way for artists to add consistent revenue.
It’s likely that these royalties will be treated as business income rather than capital gains. This means that all of the profits will be taxed, rather than half.
If you think you might have unfiled taxes on crypto, get in touch with a tax lawyer who specializes in crypto.
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