Cryptocurrency taxes or How much you will pay the government for a Bitcoin

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Venezuela Decrees Crypto Operators Must Pay Taxes in Cryptocurrencies

The Venezuelan government has published a decree requiring taxpayers with crypto operations in the country to pay their taxes in cryptocurrencies. Similarly, operators of foreign currencies must pay their taxes in those currencies. The decree states that the change is necessary for the “strengthening of the current fiscal regime.”

Paying Taxes in Cryptocurrencies

The Venezuelan government published the official gazette No. 6,420 dated Dec. 28 on Monday, local media reported. It contains Decree No. 3,719 which outlines new tax payment rules for cryptocurrency operators. Dinero publication explained:

The government of President Nicolás Maduro published a decree that will require taxpayers who carry out operations in foreign currencies or cryptocurrencies to pay their taxes in that same currency and not in bolivars.

The decree states that “the Venezuelan people are currently facing a fierce war waged by internal and external factors that pursue the deterioration of the economy, which is why it is necessary to adopt sufficient measures to ensure the strengthening of the current fiscal regime.” The Ministry of Popular Power of Economy and Finance is in charge of the execution of the decree which is effective as of the time of the publication in the national gazette.

Article one of the decree states that taxpayers in Venezuela “who carry out operations” in foreign currencies or cryptocurrencies as authorized by the law “must determine and pay [their tax] obligations in a foreign currency or cryptocurrency.”

Two exemptions are listed in the decree: “transactions of securities traded on a stock exchange” and “the export of goods and services, carried out by public bodies or entities.”

Furthermore, the decree describes that payments such as tax refunds for cases established in the decree will be made in the “national currency.”

Using Petro for Tax Calculations

Maracaibo Municipality in Venezuela’s Zulia State recently announced that it will use the national “cryptocurrency,” the petro, as the basis for business tax calculations, Runrunes reported. The announcement created some confusion among residents, who thought that they would have to pay their taxes in petros.

On Tuesday, the intendant of Servicio Desconcentrado de Administración Tributaria (Sedemat), Jean Carlos Martínez, clarified to Noticia al Dia publication that “taxpayers will not be charged taxes in petros.” He elaborated:

We are using the value of the petro as a reference unit to be able to determine the minimum tax, since the ordinance of the current economic unit is still stipulated in percentages of gross income.

He added that the petro has two values: one as a cryptocurrency and the other is “as a unit of account that translates into 9,000 sovereign bolivars, which will be used in passport procedures or current salaries.”

The new decree establishes “that the payment of taxes will be made depending on the economic activity of each company or microenterprise,” the news outlet noted. Martinez was then quoted as saying, “If someone had transactions in petro, bitcoin or other currency, [they] should declare [their income] according to the currency that [they] manage.”

What do you think of Venezuela requiring crypto operators to pay taxes in cryptocurrencies? Let us know in the comments section below.

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Images courtesy of Shutterstock and the Venezuelan government.

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Why Ohio bitcoin tax gimmick is like paying with Beanie Babies

The Bitcoin phenomena experiences both record highs and lows this week, but…uhh, what the heck is it again?

Ohio car dealer Bernie Moreno, 51, works with Ohio Treasurer Josh Mandel, left, to pay some state business taxes with Bitcoin in November. (Photo: Mercedes-Benz of North Olmsted)

Car dealer Bernie Moreno took a small step outside of the tax payment comfort zone to show that bitcoin one day could be much more than a buzzword.

Moreno, 51, converted U.S. dollars into bitcoin in late November and paid off some taxes relating to car leases to the state of Ohio – gaining the Facebook bragging rights that he was the first ever to use bitcoin to pay some type of state taxes in the country.

“Digital currency and blockchain are really the next tech revolution,” said Moreno, president of The Bernie Moreno Cos auto dealership in Olmstead, Ohio.

Ohio is the first state in the United States to accept cryptocurrency. The state allows payment of 23 different business taxes via the portal, including the state sales tax, cigarette taxes, the public utilities tax, withholding tax and assorted other taxes.

“From mom and pop coffee shops to Fortune 100 companies, businesses now have the ability to pay their taxes with OhioCrypto.com,” the Ohio Treasurer’s website says.

For security purposes, a business must have a profile on file with the state Treasurer’s office so the state knows the business and what taxes it is registered to pay.

There’s an initial three-month window where no fees will be charged. After the introductory period, the transaction fee will be 1 percent. The added cost would be lower than charges for using a credit card, the state said.

Is Ohio for real?

Sure, this tax thing is a gimmick – and most people can see right through it.

“The Ohio announcement is mainly a PR stunt,” said Kevin Werbach, professor of legal studies and business ethics at the Wharton School at the University of Pennsylvania.

“There is not a particular advantage in paying your taxes with bitcoin today,” Werbach said. “The state just wants to signal that it’s ‘cryptocurrency-friendly.’ “

After all, many businesses aren’t sitting on a pile of bitcoin currency. Some would have to go out and pay extra fees to buy bitcoin to pay taxes with it. And who is really going to do that?

On top of that, we’re talking about one incredibly speculative form of electronic cash. Imagine trying to pay any bill with something like highly-volatile tech stocks or Beanie Babies in the 1990s.

Bitcoin isn’t for paying bills

Andrew Wu, assistant professor of technology and operations and finance at the University of Michigan’s Ross School of Business, said the volatility of bitcoin itself makes it unsuitable for things like paying one’s taxes.

What’s it really worth today?

Bitcoin made headlines a year ago with an incredible run up in its price.

Just a year ago, bitcoin was a speculative sensation and hit a all-time record of $19,870 on Dec. 17, 2020. That’s after kicking off 2020 at nearly $1,000.

Yet after that incredible run up in 2020, we saw one miserable fallout in 2020. Now, we’re talking about an 82 percent drop in just 12 months.

Bitcoin was trading around $3,548 on Dec. 17 after suffering startling losses in just one month. The world’s largest cryptocurrency had kicked off November at an average price around $6,341, according to CoinDesk.

“The extreme volatility makes it pretty unattractive from a payment prospective,” Wu said.

After all, the value of a dollar is that it holds its value from day to day. Bitcoin can’t even hold the same value hour to hour.

To deal with that fluctuation, the bitcoin tax-process in Ohio involves partnering with a third-party called BitPay, an Atlanta-based payment service. The state is not holding any cryptocurrency assets.

One word: Blockchain

Bitcoin payments, though, aren’t the end game for Ohio.

Ohio’s state treasurer Josh Mandel told CNBC that the Buckeye State is looking to attract blockchain start-ups with its new acceptance of bitcoin for taxes. Blockchain has the potential to revolutionize the financial services industry by making payments faster, more secure, and less expensive on a global scale, according to industry backers.

Wu said the blockchain story is one that Ohio could benefit from one day.

“It makes sense for the states to be friendly to these blockchain startups,” Wu said. “The blockchain technology itself is very, very different than cryptocurrency.”

While bitcoin is mainly a speculative asset now, he said, blockchain technology ultimately will be useful to manufacturing, logistics and other industries to store and record transactions.

In May, General Motors and Ford joined BMW and Renault and other firms to create the Mobility Open Blockchain Initiative to explore how manufacturers could tap into this new technology.

Crypto and bitcoin taxes in the US

Did you sell, use, or convert crypto? If so, you may owe taxes if you’re a US taxpayer. Here’s a look at what that could mean, the steps you may have to take, what forms you’ll need, and how gains and losses might affect your taxes.

First, let’s get this out of the way.

Coinbase doesn’t provide tax advice. We put this guide together for informational purposes only and it shouldn’t be considered tax advice or an individualized recommendation. Please consult a tax-planning professional regarding your personal tax circumstances.

The million- dollar crypto question

1.1 Do I have to pay crypto taxes?

At Coinbase, we see crypto as the foundation for tomorrow’s open financial system — but it’s also a part of today’s traditional one. To answer the many questions on crypto and taxes, the IRS has issued crypto tax guidance.

In previous tax seasons, we received a lot of questions from crypto newbies and experienced customers alike. We get it — paying bitcoin taxes and other crypto taxes can be confusing. While we can’t give tax advice, we want to make crypto easier to buy, sell, and use. This guide is our way of helping you better understand your 2020 crypto tax obligations.

There’s a lot of conflicting content out there, but make no mistake: you are required to report gains and losses on each cryptocurrency transaction or when you earn cryptocurrency, even if there is no gain or loss or the gain or loss is not material. The IRS holds you responsible for reporting all income and transactions whether you receive a tax form from a crypto exchange or not. Exchanges like Coinbase provide transaction history to every customer, but only customers meeting certain mandated thresholds will also receive an IRS Form 1099-K.

One quick note if you’re a non-US investor: crypto taxes are treated differently country-to-country. This guide only covers the US. Unless you happen to have some US tax obligations (this is rare) be sure to consult your local country tax advisor to confirm your tax reporting obligations at your home jurisdiction.

In a nutshell.

All crypto sells, conversions, payments, donations, and earned income are reportable by US taxpayers

The reason that buying and selling crypto is taxable is because the IRS identifies crypto as property, not currency. As a result, tax rules that apply to property (but not real estate tax rules) transactions, like selling collectible coins or vintage cars that can appreciate in value, also apply to bitcoin, ethereum, and other cryptocurrencies.

To no one’s surprise, the IRS isn’t kidding around. Failure to report income, including income from the sale of crypto, could result in interest on unpaid taxes and penalties. Please consult with a tax-planning professional regarding your individual reporting obligations.

With all that in mind, here’s our list of five steps you can take to help you understand if you may need to pay crypto taxes, how to determine the amount, and what forms you may need. Let’s dive in.

Steps to take

2.1 Determine if you owe crypto taxes

Even if you’re in the “Just HODL it” camp, it’s worth evaluating your crypto transactions to determine if you may owe taxes.

What’s taxable

In short, a lot. Here are some examples of taxable crypto events:

Selling crypto for cash

In other words, realizing the gain on your crypto property (don’t forget losses could help with your tax bill)

Bitcoin: Would you want to get paid in cryptocurrency?

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Bitcoin. Lots of people are talking about, but very few own it.

So how would you feel about getting paid in the high profile cryptocurrency?

From early next year, staff at Japanese internet firm GMO Group will be among the latest to find out how that feels.

More than 4,000 employees are being given the option to receive a portion of their salary in Bitcoin.

Critics say it is a marketing stunt, announced at a time when global interest in the financial technology has never been higher.

It also carries risks: the volatile currency slumped last week but has since rebounded by more than 50%.

But what will it really mean for employer and employee?

How does it work?

Bitcoin salaries are usually paid according to the digital currency’s value at an agreed date and time.

To keep the numbers simple, if the Bitcoin price was $10,000 and an employee opted to have $1,000 in the digital currency, they would receive 0.1 Bitcoin.

Employees who choose to sell right away would receive the same in cash as they would have been paid (so long as they had arranged for the sale to happen in advance).

But holding onto the cryptocurrency, be it for a day, a week or a year, would see its value go up or go down. That $1,000 may end up being worth $5,000. Or potentially next to nothing.

And so some argue that paying wages in Bitcoin effectively encourages people to gamble.

“If an employee is receiving their salary in Bitcoin, they might as well be receiving lottery tickets”, said Massimo Massa, professor of finance at INSEAD.

“They are just participating in a game.”

Staff must be made aware that “there’s no guarantee that its price will rise and there’s no intrinsic value because there’s nothing to back it up”, he said, adding such schemes could never be compulsory.

So are employees keen?

Bitwage, a platform set up to convert salaries into cryptocurrency, gained thousands of new users this year as people got swept up in some rapid price rises.

“These days a lot of people are looking to get part, and sometimes all of their salary paid in Bitcoin”, said Bitwage founder Jonathan Chester.

The company has this year processed $30m in wages for 20,000 users in the US, Europe, Latin America and Asia including staff from Google, Facebook, GE, Philips, the United Nations and the US Navy. Many of these workers had signed up for the service on their own.

Mr Chester said he converts 15% of his own monthly salary and believes it is “a way of accumulating Bitcoin or cryptocurrencies without worrying about whether you’re buying at the right time”.

That is because people can theoretically reduce the risks of volatility because they “only buy little bits over time”.

And what about tax?

It is a tricky one to generalise, and it seems inevitable that as the industry develops, so too will the tax rules.

Wherever they are in the world, employees will usually be liable for income tax due on their Bitcoin wages, calculated on its value at the time the salary is paid.

But just like with stock options, employees may need to pay capital gains tax if their Bitcoin has risen in value, depending on the tax jurisdiction.

What is in it for employers?

Some companies working in the cryptocurrency industry have been offering Bitcoin salaries for years.

After all, if you got in early and bought when the price was much lower, then it could be a smart move to use it now to pay wages.

But for others it is all about business strategy.

Japan’s GMO, for example, says it wants to get staff thinking about cryptocurrencies.

It has recently expanded into cryptocurrency trading and crypto mining.

And so it hopes that if at least some employees have direct personal experience of Bitcoin, it will help with “nurturing and developing cryptocurrency literacy”.

And that, it says is “vital to the growth and expansion of our cryptocurrency business”.

Is Bitcoin the only option?

The digital payment industry is expanding, with new digital currencies emerging all the time.

At the Singapore based blockchain company TenX, staff usually have their base salary paid into their bank accounts, but their monthly bonus is paid in Pay tokens, the firm’s own digital currency.

The tokens, which can be traded on digital exchanges, were issued in an initial coin offering in June, allowing the company to raise $80m.

TenX co-founder and president, Julian Hosp, said it did not make sense to buy Bitcoin to pay bonuses when the company already had its own currency.

Paying bonuses in tokens can incentivises staff as Pay’s value should rise in line with the company’s success, Mr Hosp added.

TenX community manager, Mike Ferrer, has gone further and opted to receive part of his base salary in Pay, on top of his monthly bonus.

The 32-year-old has been investing in cryptocurrencies for some time, and accepts that there are huge risks, but says he only invests what he can afford.

“I visualise myself throwing in a pile of money and watching it burn in front of me, and if I can’t feel comfortable with that then I know I’ve over invested”, Mr Ferrer said.

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