For many traders, keeping track of cryptocurrency holdings can be a challenge normally, but especially when it comes time to declare them at tax time. Around the world right now many nations have either just had their financial year end or see it fast approaching. Even among those who enjoy maths and some calculator work, tax time can only be thrilling to a very small portion of human beings. But despite some of the drudgery that comes with sorting out a tax return, it is vital that it’s done correctly – though mistakes can happen.
Mistakes the government may punish if something is amiss, as after all taxes are where the government gets its money from. Yet even if proactively seeking to avoid making a mistake, sometimes there are areas of a tax system that can catch a taxpayer out unaware. It’s hard to keep up with every new regulation or law, and most of the time they don’t bring in huge changes.
The Crypto Exception
The rise of cryptocurrency is an exception here. It’s quickly recognized by crypto traders the potential cryptocurrency has to transform the way in which human beings live, work, and play. After all, driving future innovation and growth is the centerpiece of countless cryptos that are out there on the market.
But it’s often overlooked what a huge impact cryptocurrency has already had on issues of taxation. In turn, that anyone who fails to properly address their crypto finances at tax time can be at risk of falling foul of the law. Typically there are three major errors that many crypto traders can overlook at the end of the financial year.
Three Common Crypto Errors
When a crypto is sold for a loss of profit, it triggers a capital gains or loss event. Cryptos may be digital currency, but many governments now treat them like regular currency for taxation purposes. That’s why it’s expected any financial profit or loss owed to trading cryptos will be declared.
Similarly, when fiat currency is traded for cryptos, it’s expected the price of the crypto at the time is noted. Even if the crypto is volatile, knowing the original price is essential to calculating the capital gain or loss. Lastly, there is the expectation cryptos traded for other cryptos will have their transaction price and time recorded.
These are clearly a lot of transactions and figures to keep track of. For regular crypto traders, establishing a system of automation often helps ensure this data is recorded and ensures much of the droll work of ongoing manual recording isn’t required.
Making Things Right
Odds are that many people reading this now have learned of these common expectations around tax, and are now worried they haven’t declared properly on their last tax return. This wouldn’t be ideal, but it’s also true many governments are still figuring out how to deal with cryptos, and that includes the proper arrangement for their taxation.
In event someone now feels a mistake has been made on their last return, common sense says getting in touch and self-reporting the error is the best way to resolve it. Any citizen who proactively self-reports an error and seeks to fix it will invariably receive a more lenient penalty (if one is applied at all) than a citizen who actively seeks to hide their assets, and only comes clean once an audit is issued.
Though ‘past performance is no guarantee of future behavior’, many governments would settle for a citizen just paying the amount owed on any crypto profits. While government’s do expect tax returns to be done properly, they are also mindful an effective tax system is always a two-way street. That’s why citizens who attempt to fix any tax errors can often have a penalty excused.
Disclaimer: Content provided in this article is for informational purposes only and does not constitute professional advice.