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How to Navigate the Minefield of Cryptocurrency Taxation

National tax agencies have recently made it clear that the long arms of the law will be wielded to ensure bitcoiners pay the appropriate tax on their earnings. Motivated by surging interest in crypto, authorities are cracking the whip and instilling fear in those who have, until now, dismissed the notion that they might be pursued for tax on their trading.

Also read: IRS Dispels Crypto Tax Confusion

A Taxonomy of Crypto Tax Requirements

Quantifying gains and losses on cryptocurrency purchases, and determining which transactions are liable to tax (and which kind of tax), has long been a challenge for individuals operating in this space. Compounded their dilemma was a complete lack of direction from authorities, which have been slow to develop an understanding of the cryptosphere and tighten their regulations accordingly. In light of recently published guidance, and the spate of ensuing news coverage, however, anyone found to be willfully dodging tax cannot reasonably claim ignorance of their obligations.

Which isn’t to say that managing your crypto tax affairs is now a walk in the park – far from it. The complexities of hard forks, token sales, airdrops, mining and the heterogeneous nature of exchanges (property for crypto, BTC for ETH etc) throw up no end of questions, and every country has its own rules. Figuring out the tax due on your crypto transactions over the course of a year, particularly if you are a busy investor, can be a bit like trying to solve a riddle wrapped inside an enigma, concealed within a conundrum.

Maintain Accurate Transaction Records

To summarize: if you have bought, sold, sent or received digital currency in recent years, you should have been maintaining comprehensive records of your activity. It’s impossible to know just what percentage of cryptocurrency holders have dotted their i’s and crossed their t’s, but given that the IRS recently mailed over 10,000 letters warning of stiff penalties for those who fail to pay tax on their transactions, the suspicion is: not all. Not even close.

And blatant evasion isn’t the only reason for that. Another is that, historically speaking, many accountants have been unwilling to familiarize themselves with crypto-accounting directives. That’s why, in the last few years, an entirely new subset of accountancy firms have entered the market, targeting the crypto niche. Specialist software such as cryptocurrency tax calculators and automated accounting programs have also appeared, promising to help you report gains and losses more accurately.

While working out tax due on crypto investments is tricky, record-keeping itself isn’t. It’s mainly laborious and punishingly dull – a matter of faithfully recording the date and time each crypto asset is acquired, its market value at the time, the date and time each asset is sold, exchanged or otherwise disposed of, the market value of each unit when it is sold, exchanged or disposed of, and the value received for each unit. Better start populating a spreadsheet.

As with any transactional enterprise, consistent, accurate record-keeping will stand you in good stead when it’s time to file your tax return. Don’t leave it until the last minute.

How Crypto Tax Software Can Simplify the Process

Traditional accounting systems simply aren’t equipped to deal with virtual currencies, which are famously volatile and differ in key ways from fiat money. Maintaining accurate accounts, therefore, requires a lot of legwork if you assume the burden yourself.

As mentioned, hiring a specialist senior tax accountant or utilizing crypto tax software can help you navigate the daunting landscape and satisfy the circling wolves. Most tracking programs allow you to import CSV files of your trades direct from exchanges, and review real-time dashboards so you can track your obligations from month to month. Accountants, meanwhile, can negotiate with tax agencies on your behalf to resolve any queries or disputes, and their experience may prove invaluable if your obligations encompass hundreds of trades across multiple platforms, involving disparate tokens. Even contemplating such reporting liabilities is enough to induce a headache.

With tax authorities now looking to work with exchanges to identify those who have bought and sold crypto, it’s time to start paying the piper if you haven’t already. Every single trade you make in the cryptosphere is likely to impact tax calculations in some way. Speak to a tax professional, invest in tracking and management software, or – providing your trading history is relatively straightforward – do it yourself. Godspeed.

What crypto tax tools do you recommend? Let us know in the comments section below.

Images courtesy of Shutterstock.

Did you know you can verify any unconfirmed Bitcoin transaction with our Bitcoin Block Explorer tool? Simply complete a Bitcoin address search to view it on the blockchain. Plus, visit our Bitcoin Charts to see what’s happening in the industry.

Kai Sedgwick

Kai’s been manipulating words for a living since 2009 and bought his first bitcoin at $12. It’s long gone. He’s previously written whitepapers for blockchain startups and is especially interested in P2P exchanges and DNMs.

Kai Sedgwick , 2019-11-22 23:00:40 ,

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NewsBlock © 2019 - 2020 All rights reserved.

NewsBlock © 2019 - 2020. All rights reserved.

While Bitcoin’s price seemingly moves without rhyme or reason — collapsing by dozens of percent and embarking on face-melting rallies on a whim — the cryptocurrency market is filled to the brim with fractals.

Related Reading: Analyst: Bitcoin Price Likely to Fall to Low-$8,000s as Chart Remains Weak

A brief aside: A fractal, in the context of technical analysis and financial markets anyway, is when an asset’s price action is seen during a different time. This form of analysis isn’t that popular, but it has proven to be somewhat valuable in analyzing Bitcoin.

One recent fractal popularized by a well-known cryptocurrency trader is implying that BTC is going to return to the low-$7,000s in the coming days.

Bitcoin Fractal Implies Retracement to Low-$7,000s

A well-known crypto trader going by “Tyler Durden” on Twitter recently posted the chart below, which shows that a Bitcoin price fractal may be playing out. The fractal has four phases: horizontal consolidation marked by one fakeout, a surge above the consolidation phase, a distribution, then a strong drop to fresh lows.

If the fractal plays out in full, BTC could reach the low-$7,000s again, potentially as low as $7,100. This would represent a 20-odd percent collapse from the current price point of $8,800.

It isn’t only a fractal that is hinting Bitcoin has the potential to visit its lows. As we reported on Saturday, Bloomberg believes that if the GTI Vera Convergence Divergence Indicator flips red, a downtrend could push the cryptocurrency back to $7,300.

Related Reading: Stephen Colbert Pokes Fun at Bitcoin in Monologue: Mainstream Gone Wrong?

Can Bulls Step In?

But again, many believe it is irrational to have such bearish interpretations of the cryptocurrency’s chart at the moment. As reported by NewsBTC earlier, Popular crypto trader Mayne recently noted that the “people waiting for $6,000” are irrational. He quipped that Bitcoin retracing and consolidating after its fourth-biggest bull move in history ($7,300 to $10,500, a 42% gain) is perfectly par for the course, but noted that it’s totally possible we can go lower from $8,800.

The medium-term technicals support this.

Trader and CoinTelegraph contributor FilbFilb found that by the end of November or start of December, the 50-week and 100-week moving averages will see a “golden cross,” which he claims is far more significant” for the Bitcoin market that other technical crosses.

Also, a Bitcoin price model created using Facebook Prophet machine learning found that the leading cryptocurrency is likely to end the year at just over $12,000. What’s notable about this model is that it called the price drop to $8,000 months in advance, and forecasted a ~$7,500 price bottom for BTC.

To put a cherry on the cryptocurrency cake, Crypto Thies observed that when Bitcoin bottomed at $7,300, it bounced decisively off the 0.618 Fibonacci Retracement of the move from $3,000 to $14,000, which correlates with the two-week volume-weighted moving average. He added that summer 2019’s consolidation was marked by Bitcoin flipping major resistances into support levels, implying that a bullish reversal and subsequent continuation is likely possible in the coming weeks.

Featured Image from Shutterstock

Nick Chong , 2019-11-10 12:00:38

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