How do you get Taxed on Cryptocurrency, Bitcoin etc.?.
Like many other trading situations, if you operate any form of investing, trading or business, you pay tax on your profits.
A manufacturer, who creates and then sells a product, will pay tax on the profits of that sale, after deducting their costs.
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- Someone mines cryptocurrency will pay tax the same way that someone who mines gold will pay tax.
An investor, who buys and sells shares, will pay tax on the balance after deducting the original cost, and other trading expenses.
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- Someone who buys and sells cryptocurrency, will pay tax the same way that someone who buys and sells cryptocurrency will pay tax.
The most important thing to remember is to keep records.
If a trader sells a kilogram of Gold, but can’t prove they bought it for a certain price, their profit will be based on them having mined it. ie: The sale price could become the taxable profit price.
If a trader sells a unit of Cryptocurrency, but can’t prove they bought it for a certain price, their profit will be based on them having mined it. ie: The sale price could become the taxable profit price.
An example to scare you:
You buy a Bitcoin for $14,000, then sell it for $15,000, making $1,000 profit.
But you keep no form of records.
All the tax office knows is that you sold it for $15,000, and it had no cost. (so you either mined it yourself or it is proceeds of crime)
Therefore you made a $15,000 profit, and the tax office wants 30% ie: $4,500.
If you keep records, then the tax is only 30% of the $1,000 profit ie: $300.
(30% is used as an example only. Tax rates differ)
Keep full records, bank transfer details, print screens of any financial transactions, anything to prove the real situation, if asked, even a few years later.
Do not rely on cryptocurrency trading brokers keeping records for you. They may disappear one day, taking all the records with them, and maybe even your cryptocurrency itself…