fbpx
Connect with us

CryptoSpace

Top 5 Best Practices for Filing Crypto tax Returns

Published

on

filing crypto tax

It is that time of the year again. Ben Franklin’s inevitability. Taxes.

For many, taxes are a time of celebration because each year they get tax credits and refunds from the Government. For others, it is a time of panic and scrambling to gather the information to call it good riddance for the year.

Individuals with filling crypto tax return matters, well, they are a different ball game.

Gathering the information to report all crypto transactions is a nightmare, and that’s underselling the pain.

While using a crypto tax software is ideal, not everyone wants to use them and for some, they may have kept a good track of all their crypto tax transactions and don’t have a need to use the software.

Whether you use filling crypto tax software or do it yourself, there are few things that you may have not thought about. We are going to look at the top 5 best practices to report crypto tax transactions.

Best Practice 1:  Reporting Income from Foreign Sources (yes, including foreign exchanges)

If the current trend is any indication, tax authorities and Governments of many countries are coming together to ensure that Crypto does not become an avenue for money laundering and tax evasion.  To this end, they are forcing the crypto exchanges to report the transaction information with the tax agencies.

We all know about the IRS summons to Coinbase. Foreign Exchanges filing crypto tax

Point is, if you are thinking that your transactions in the foreign exchanges are in safe hiding, you may be wrong.

In the US, the IRS has taken a kinder stance with individuals that show good faith in reporting every transaction.  However, a willful concealment never finds a good justification.

We cannot tell you whether you should report it or not.  The Law does. It is up to you whether you want to follow the law of your land or not, as long as you are prepared to face the consequences.

Best Practice 2: Treatment of bankrupt coins due to Crypto exchange hacking or Government action 

Some opine that you can claim these coins as a total capital loss. That means their value is now zero. You can even carry forward these losses and put against future gains.

Make sure you keep good records because you may be asked to justify that this decision. So if the token went to zero, is defunct, you sent to an address and they disappeared, you got scammed, you lost your keys – then you can consider taking a capital loss on those coins.

Claiming that you cannot access your funds because of lost keys could be tricky to prove. However, an exchange hack or SEC action that results in loss can be justified as the news is generally in public domain, as long as you have good records of all the purchases you made in those particular coins and/or exchanges.

If the cryptocurrency you hold has the same status as securities in the eyes of law, then the treatment of worthless stock (US) may be an option.  Talk to your tax attorney or CPA to see what works for your situation.

Expert ViewExpert view  

In a recent interview, Aaron Grinhaus, an Attorney practicing in Blockchain and Crypto space opined “From a tax perspective this depends on whether the tokens were purchased in the course of business or for personal use. If it was in the course of business it could be construed as a business loss, either capital or current depending on the characterization of the assets. If it was for personal use what is less clear what tax benefit may be available.

Best Practice 3: Income from Airdrops and Mining endeavors

Airdrops

If you operate a mining company, you are in the business of making money.  As such, you should report the transactions related to your business on your tax returns as you would any other business venture.

You get to deduct your expenses like electricity costs, rent, depreciation on the mining machines, etc. to arrive at the compensation that needs to be reported to the tax authorities.

Whether you dispose of the coins received through mining or airdrops is not relevant, the date of receipt will be when you recognize your income at market value for tax purposes.

Note: Whether mining is legal in your place of residence is an aspect you need to look into, which is beyond the scope of this article.

Expert ViewExpert view
Pat Larsen, CEO at Crypto Tax Software company ZenLedger, reminds us that “any coins that you earn as a miner while processing transactions are considered income by the US government and treated as such. Then, if you hold onto the mining reward and later sell it at a gain, there is a capital gains component as well. So at time or mining reward, the coin you received is considered income at the market price of the coin. If you hold the coin for a period of time and sell it later for a profit, that profit will be taxed as a capital gain.”

Best Practice 4: Don’t forget the FinCEN (FBAR) and FATCA reporting

Cryptocurrency transactions pose yet another added obligation for Americans (your country may have something similar, our friends tell us that India and the United Kingdom have similar reporting).

Any financial assets, including Cryptocurrency, held outside the US will have to be reported to two agencies once the specific threshold is met, i) United States Treasury; ii) Internal Revenue Service:

filing crypto tax

  • FinCEN Form 114: this is a disclosure filed with the United States Treasury whenever aggregate of your foreign financial accounts reaches $10,000.  Remember, for the purposes of $10,000, you have to add balances in all the accounts, once the threshold is met, every foreign financial account has to be disclosed. Our FREE guide goes into greater detail.
  • FATCA:  If you don’t know what FATCA is, probably, you should talk to a tax professional.  One of the inadvertent consequence of having crypto transaction is that it could trigger FATCA reporting. While the reporting thresholds are higher than FBAR, you want to make sure you are compliant with FATCA regulations.

The penalties for not disclosing overseas holding are different from the IRS penalties for not paying taxes. Government agencies are constantly trying to monitor the flow of cryptocurrency that may be trying to get around sanctions or get too bad actors around the world. The IRS focused heavily on revealing Swiss bank accounts and they are looking closely at crypto now too.

Expert ViewExpert view

Jason Bierly from Aprio conveys that while there is “no formal regulatory / tax guidance as it relates to cryptocurrency. We are interpreting current legislation to apply the US$10,000 threshold across all foreign exchanges for FBARs.

Non-willful violations come with a potential penalty for not filing is $10,000. The willful neglect penalty is greater of $100,000 or 50% of the amount in the account for each violation.

Filing Form 8938 does not relieve you of the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Failure to file Form 8938 comes with a $10,000 penalty.”

Best Practice 5: Choosing the right Tax Method to use 

Right Cryptocurrency Tax software

While filling crypto tax software like Cointracking provide multiple methods to use, not all of these methods are accepted in every country.  You need to first check which method you want to use and if you can consistently keep using that method.

  • First In First Out (FIFO): This method reports transactions as though the crypto you bought at the beginning is sold first.  Depending on when you bought your crypto – this may result in a higher or lower tax. This is the most widely used and generally used method.
  • Last In First Out (LIFO): As the name suggests, you are assumed to have sold the most recently bought crypto first. You have to make sure that if you choose to use this method – you are using it consistently.  You cannot jump between methods.

Expert ViewExpert view:

Andrew Gordon, CPA, and ZenLedger legal advisor remind investors that “while the IRS has not explicitly spelled out which tax method to use, he strongly recommends the FIFO option, like your least risky approach. The main requirement of selecting LIFO accounting is the ability to individually identify a coin or fraction of a coin down to 8 digits. This seems like a very tough task.”

Honesty really is the best way to go when it comes to taxes and disclosures.

If you are looking for Crypto tax software review, you can see our earlier article: Comparing the BEST Crypto Tax Software

Thank you for reading this article.

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

Subscribe to be notified for new updates in Crypto and Free eBooks!
Subscribers get our upcoming copy of ‘STAYING RELEVANT’, an essential primer from Cryptotapas for FREE!
Staying Relevant by Cryptotapas
filing crypto tax
Buy us a Coffee: Keep information FREE. We do not sell what we research. A small tip from you can help us bring you more content like this for FREE.

BTC: 37kJr9PodRHzsG5u1ZfKkfYpHFSZrS8s9n 

filing crypto tax

If you are thinking to open KuCoinKucoin Referralaccount, please consider using our referral link.

About the author

RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.

RK Reddy is an ardent fan of Blockchain and Cryptocurrencies. You can see the excitement about this new technology in every article on Cryptotapas.com. Sometimes this excitement leads to an overly optimistic view. Guilty as charged. RK Reddy says what may seem like an ‘overly optimistic expectation’ today may become an everyday norm in 5-10 years; look at the history of cars or airplanes, Blockchain and Cryptocurrencies belong to a similar frame of reference.”  Of course, that is just his opinion.


CryptoSpace

Is this the end of XRP?

Published

on

XRP Crash

Our dislike for XRP is well documented on our site…if you have missed them, here is a list of articles where we have made our opinion based disdain clear…

Why we do not support nor invest in Ripple

Ripple or not to Ripple? ‘Definitely not’ says a research report

5 questions we want XRP army to answer!

This is not a personal attack, mind you.  

We just don’t like the idea of a private company printing billions of dollars worth of money that is centrally controlled which goes against the spirit of crypto space.  This is our opinion and we are sticking with it.

Yes, we understand that we might be missing out on life-transforming gains on XRP by staying away from it.  It is OK with us. 

We generally do not trade based on sentiment, however, XRP has always been an exception given what we want Crypto space to represent.

Given all that, we were not surprised at all when the latest FUD around SEC investigation into XRP came out.

Is this the beginning of the end for XRP?

“Justice is on the side that can afford the best attorney” is the common joke in my country…and that seems to hold true for the world in general.

If we are forced into speculating, this is what might transpire in our view:

  • When drafting this article, we were of the opinion that SEC might just let this go through a simple fine (similar to EOS), however, after reading the complaint lodged by SEC we are not really sure that Ripple may be able to get off the hook that easy 
  • Ripple and SEC might compromise on a way forward in terms of reporting requirements, however, if SEC gets what they are going for – Ripple and Garlinghouse may not be able to continue their ‘sale’ of XRP
  • Ripple may use this ‘excuse’ to move its headquarters to a more ‘friendlier’ location outside the US, however, an unfavorable outcome from SEC could jeopardise its chances in most locations
  • Major exchanges could distance themselves from XRP until an outcome emerges to avoid getting caught selling unregistered ‘securities’

Is XRP a security?

We think so.  Of course, the court will have to rule the final verdict but here are the reasons why we personally think XRP is not like other cryptos.

  • Most projects actually are working on a solution and the revenue is dependent on the success and adoption of the project.  On the contrary, XRP had minted 100 Billion at the beginning of the project and kept bringing 1 Billion at a time to add cash to their business.  This means, whether or not there is any adoption – Ripple (and owners) made money by simply selling XRP.  At the time of this writing, owners still control billions worth XRP.  
  • Most projects that run an ICO have a majority of coins distributed to the investors…creators have little say in the way those coins then get circulated…take for example, EOS.  Although the company raised $4 Billion through ICO – they got away with a slap on the wrist because the owners do not control the majority of coins anymore
  • Ripple/XRP executives were caught bragging about how they can sell XRP to keep the business going (notice, they talked about selling XRP to make gains more times than the adoption bringing success);  Unfortunately, these talks are all public records and the SEC may use these in the court proceedings
  • Pages 9 and 10 of the lawsuit is really important where SEC claims that Ripple was warned about XRP being considered a security by a law firm, however, Ripple disregarded these warnings…excerpt 57 and 58 from the lawsuit

“57. On May 26, 2014, Larsen explained in an email to an individual formerly associated with Ripple that the international law firm that wrote the Legal Memos advised “that investors and employees could not receive XRP” because that “could risk SEC designation [as] a security.” Larsen also explained that the XRP he received upon Ripple’s founding was “comp[ensation] for . . . personally assuming th[e] risk” of being deemed the issuers of securities—namely, XRP. 

  1. In other words, as Larsen himself explained, he was paid at the outset in an asset (potentially worth hundreds of millions of dollars) to assume a risk he knew existed—that the sale of the asset could constitute an offering of securities for which he would be held responsible.” 
  • There are allegations that Ripple paid companies to use XRP to ‘hide’ the fact that Ripple is difficult/expensive to use (this in the lawsuit), take a read.

“339. Much of the onboarding onto ODL was not organic or market-driven. Rather, it was subsidized by Ripple. Though Ripple touts ODL as a cheaper alternative to traditional payment rails, at least one money transmitter (the “Money Transmitter”) found it to be much more expensive and therefore not a product it wished to use without significant compensation from Ripple.

Is this an attack on the entire Crypto industry?

We do not think so.

If the SEC wins this case, it will set a precedent against having ‘centralized’ control on the projects without being treated as a security, however, it is unlikely to stifle the projects that do not have centralized control on the supply and sale of the coins, in our opinion.

Our whole [opinion] contention from the beginning has been that XRP does not fit the definition of cryptocurrency.  If anything, we are surprised that the SEC took this long to bring the charges.

It does not matter what we think about the project, what matters is the outcome of this battle. 

Will the SEC make an example of Ripple or will Ripple find a way to circumvent these proceedings.

Things might get very interesting going into 2021 for Ripple, Garlinghouse and XRP.Note: We have to do this to avoid harassment from the XRP army, in case you missed it earlier, this is our speculative opinion.  No one knows what might actually happen.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Continue Reading

CryptoSpace

Transforming Data Center Infrastructure With Blockchain

Published

on

Blockchain Infrastructure

Cryptocurrency – just hearing the name – can spark discussion topics on how innovative and controversial it is. However, nowadays, there seems to be a consensus that blockchain – the technological backbone of every form of cryptocurrency – is the former. The latter part of the discussion comes from the fact that cryptocurrency is still new, and needs more improvement, before it can actually be considered a wildly-accepted type of commercial (public) currency.

On the bright side, companies like Google and Goldman Sachs have already started to invest in various blockchain firms. And, it’s expected that sometime in the future, more big-name companies will follow suit, if cryptocurrency succeeds. Therefore, data centers and cloud hosting services must be ready to serve these new blockchain-based companies, as well as their needs, in the coming years.

So, you may be wondering: How did we get here? 

How Did It Start?

Modern blockchain started in 2008 with Bitcoin, which is a peer-to-peer Electronic Cash System. This white paper was a form of cryptocurrency that could live on a distributed network without any centralized authority; and blockchain is the technical backbone of that system, or a distributed digital ledger or database for it. No central authority will be able to manipulate the blockchain, since the whole network contributes to its creation and maintenance.

How It Works

In blockchain, two parties will make a transaction, to which they advertise it to the network. Then, various network nodes pick up multiple transactions, and arrange them into blocks. Afterwards, miners will use computers to add this block to the ledger (or blockchain).

Now, in order to add these blocks to the blockchain, the task requires a lot of computing power. Why? Because each of these blocks come with a sort of attached mathematical puzzle. And, to solve these puzzles, they need computing resources. But don’t worry: these puzzles are what miners are interested in, because they’re usually rewarded with tokens, just for adding a block to the blockchain.

Before the existence of blockchain though, business transaction would’ve been made through a trusted third-party company (i.e. a bank or a government institution), in order to guarantee the integrity of a transaction between two parties. However, blockchain eliminates that need by opening up the possibility for business transactions between parties worldwide, without the need for any financial or government institutions to step in. 

What Blockchain Means For GPUs

The need for blockchain means elevated demand for graphical processing units (or GPUs). As blockchain calculates, miners will have to provide enough computing power for it. And, as cryptocurrencies and blockchain-based applications become more popular, the higher the demand for computing power. That’s where GPUs come in, since blockchain-based calculations are best performed on these units. 

Data centers and cloud-hosting services will also have to look into AMD and NVIDIA graphics cards, in order to better serve the blockchain market; however, these graphics cards can be pricey. And, they’ll have to better optimize their infrastructure to be GPU-compatible.

Concerns?

The most controversy that cryptocurrency has faced is its vulnerability to possible hacking schemes. One can argue that there are major concerns about blockchain hackers taking – or planning to take – advantage of the fact that cryptocurrency doesn’t have enough protection yet to sustain itself, in case of a security breach that can cost millions.

Concerns on cybersecurity for data centers, in that case, seems to have spawned from cryptocurrency market’s promise of immense riches and overnight successes, to where anyone – including bad actors and hackers – will create an ever-growing threat in the cyber realm.

“One example of hacking of cryptocurrency was in January of 2018, when hackers were able to steal more than $500 million (or £380 million) worth of cryptocurrency from the Tokyo-based cryptocurrency exchange Coincheck,” adds Barnard. “Thus, that story, to this day, serves as a warning to what can happen, if cryptocurrency is unchecked. And, this story has many people concerned about whether cryptocurrency is safe to invest in or not.”

Conclusion

As you can see, data centers will have to go above and beyond to better accommodate the growing trend of cryptocurrency. And, to do so, they’ll need a good functioning digital infrastructure, to handle blockchain systems and increasing data processing demands.

This need for the right data center infrastructure is also increasing, since blockchain is expected to greatly impact the following:

  • Finance
  • Healthcare
  • Government
  • Transportation
  • Manufacturing
  • Medicine
  • Logistics
  • Other various industries 

Thus, it’s absolutely necessary for data center service providers to stay competitive, when it comes to such changes in technology, including blockchain. Ultimately, with an up-to-date infrastructure for blockchain to work on, data centers will be able to be sustainable, regardless of any changes and or developments made in the tech world for many years to come.

Author’s Bio: Katherine Rundell is a writer and editor at UK Writings and Academized. In her spare time, she likes to travel to different states, give special talks in various business training courses, read her favorite books (ranging in different genres).

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

 

Continue Reading

CryptoSpace

5 Best Crypto Movies To Learn Crypto From

Published

on

Crypto Movies

Bitcoin has been around for 10 years. As a result, there are many people who will keep tabs on it and cheer for its modern successes. So today, we want to celebrate along with crypto fans by bringing you a fun article about the topic.

If you thought that cryptocurrency is all business, business, business – well, in actuality, crypto has also made its way into cinema. Yes, in this article, we’ll show you the 5 best movies that involve Bitcoin, crypto, and blockchain. And, the good news is, you don’t have to read really long articles that talk about crypto, when you can watch a fun movie instead!

So if you want to gain a bigger understanding on what Bitcoin is, and why it’s so important in today’s world… or if you want to educate others on why Bitcoin is NOT something out of a science fiction movie (no pun intended), then check out these 5 great movies.

Cryptopia: Bitcoin, Blockchains And The Future Of The Internet (2020)

Cryptopia Bitcoin Blockchains and the Future of the InternetCryptopia is an ideal film for novice cryptocurrency people. So, if you’re a newbie in the crypto world, or want to brush up on your crypto skills, then check out this documentary. 

This film is a deep-dive into the crypto world, and it doesn’t shy away from explaining the good things about crypto, as well as the negative parts of it. Yes, crypto can be both a Godsend and a curse, depending on how you look at the narratives you’ll listen you in the documentary. In hindsight, the movie will explore the story of bitcoin, and how it has managed to evolve through the years with its ongoing promises that crypto is “the future.”

So, whether you’re a skeptic, or you want to learn more about crypto, you’ll get to see both sides of the debate – as a better alternative to regular currency in the future, or a financial disaster in the making. Either way, this documentary will answer any questions that you might have about crypto.

The Rise And Rise Of Bitcoin (2014)

The Rise and Rise of BitcoinEver wondered how cryptocurrency became a thing? Then check out The Rise and Rise of Bitcoin! The film covers the stories of some of the early adopters of Bitcoin, including Gavin Andresen who was famous for communicating directly with Satoshi Nakamoto to help him create better technology. (By the way, Nakamoto is mostly famous for authoring the Bitcoin white paper, and for devising the first blockchain database.

Overall, this movie was one of the major productions to cover the main points, in regards to how Bitcoin and its assets were created to begin with.

The Second Target (2019)

The Second TargetThe Second Target was written by Graham Holliday, and stars Athen Walton. The movie follows a group of local crypto thieves now having their eyes set on their latest target. They kidnap a detective they think is on their case, but end up kidnapping the wrong guy. To make matters worse, the son of the kidnapped man teams up with a stranger, and they plot to stop the thieves’ second heist and save the kidnapped man.

While you’ll be immersed in the action, you’ll be learning the basics of what crypto is.

Trust Machine: The Story Of Blockchain (2018)

Trust Machine understands that almost a decade has passed, since the crypto world has transformed things. Since its existence came to be, many different cryptocurrencies have been created, with a small percentage of them expected to stand the test of time after the dust settles. While some people are still skeptical about the concept of cryptocurrencies, there are some parts of the world where people actually use cryptocurrencies as a way to buy things. However, other places have faced significant problems, as a result of exchanging goods with crypto within the industry.

Crypto (2019)

Crypto MovieCrypto, despite its panning from critics, has garnered somewhat of a fanbase. With a stellar star cast like Alexis Bledel, Luke Hemsworth, and Jeremie Harris, it’s hard to not see this movie. And, with a thriving fanbase, this movie is not only for movie fans, but also for crypto fans. 

The story follows an anti-money laundering agent (Beau Knaff) who reunites with an old friend who’s now into mining cryptocurrency. Now, with a potato farm being on the verge of being repossessed, the two soon investigate a gallery, which may be tied into a multi-million-dollar money laundering scheme. 

It’s action-packed, and it has you cheering for the protagonists as you follow the story from beginning to end.

BONUS: Throwback Movie – Inside Job (2010)

Now, while the film doesn’t directly involve Bitcoin or blockchain, it’s a good appetizer for learning what they are. And, it’s a must-watch!

Inside Job covers the actions that made Bitcoin a household name in the first place. The movie sells the concept as a type of currency that can’t be manipulated, controlled, or corrupted by any government. 

However, the main topic of the documentary involves the late-2000s financial crisis. In 5 parts, the film will cover how changes in the policy environment and banking practices only added more fuel to the fire, rather than stop the crisis in its tracks. 

Critically acclaimed, and winning an Academy Award for Best Documentary, Inside Job will have you on the edge of your seat, as it takes you through the financial crash. All information in this documentary, as well as its controversial topic, are understandable for most audiences, regardless if you know about cryptocurrency or not. 

Conclusion

So, there you have it! That was our list of movies to check out, if you’re in the mood for learning about cryptocurrency. If you want to go down the rabbit hole about the topic, or if you’re in the mood for something different than your usual shows and movies, then head over to Netflix, online, or anywhere where movies are sold, and check out our picks on the best movies about crypto.

We hoped you enjoyed our list, and made it a movie night tonight! As you’ll see in these selected films, they’ll show you how cryptocurrency has changed people’s lives in so many ways than one, and has no plans of stopping. So, get out your popcorn, and take some good notes about crypto! 

Author Bio:

Kristin Herman is a writer and editor at Best essay writers. As a marketing writer, she blogs about the latest trends in digital marketing. In her spare time, she coaches up-and-coming marketers on how to perfect their advertising practices in the ever-evolving market.

For movie crypto movies: Crypto Movie Database

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Continue Reading

Trending