Cryptocurrencies have been around for more than a decade now, but lawmakers, accountants and investors still struggle to tax them properly. Why it is a challenge to come up with a cryptotax for Bitcoin, Ethereum and co. and how this issue will develop in the future can be found below.
The Taxation of Cryptocurrency
The taxation of Bitcoin and co. is a very complex topic that comes with constant change. The legal situation has to develop just as quickly as the technology itself, which is not always easy. The American Revenue Service (IRS) first came out with a legal statement on cryptocurrencies in 2014 to help tax advisors and individuals with the taxation of crypto-assets. In 2019 they came out with a completely overhauled version of the guidelines and even offered a Frequently Asked Questions page on their website. Almost every single aspect of the legal treatment of cryptocurrencies has changed since the first draft had been published. Needless to say, it’s hard to keep up with all these legal changes, especially for tax consultants and lawyers. At the same time, technology has changed a lot as well with many new forms of crypto, e.g. Airdrops and Hard Forks.
Approaching the Cryptotax
Not only cryptocurrencies are hard to define legally, their regulatory framework comes with a lot of challenges as well. It doesn’t matter if you’re a lawyer or crypto-trader - all activities including cryptocurrencies have to be properly taxed and comply with anti-money-laundering laws. In the EU, it was only at the beginning of the year when cryptocurrency was specifically mentioned in the AML5 and Travel Rule guidelines. Even if you are an expert in the field it is hard to keep up with the ever-changing laws and regulations. Compared to the early years of Bitcoin and co. many tax advisors and lawyers now offer legal guidance for cryptocurrencies, yet it is still challenging to make correct decisions for special cases. However, this also means that there is room for improvement. With definitions that are in a legal gray area, each individual has to be aware of the importance of proper documentation of each and every single crypto transaction.
The Future of the Cryptotax
More and more nations have been publishing and updating guidelines for their crypto-laws in the past years. Only a few weeks ago, South Korea announced that they would tax crypto like any other income in the future. Information about each country’s own laws and taxation can be found in our blog category “countries and their crypto-laws”. Nonetheless, many nations will have to rely on special tax cases to decide the fate of their crypto-regulations. After all, it will be the cases that end up in court that will shape the future development of Bitcoin, Ethereum, Ripple and co.
Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations we recommend contacting a certified legal advisor in the specific country. As this blog post refers to international crypto laws, the content will only be available in English. If any questions occur, feel free to contact us in our social media channels.