But What Questions Does This Raise About Tax?
Security breaches are nothing new in the cryptocurrency space. In the last few months, various cryptocurrency exchanges, including Cryptopia, Bithumb, and DragonEx. These events not only see users lose funds, but also have tax-related implications.
One of the things cryptocurrency users should know about taxes is that crypto sales and trades are taxable, which means trades on exchanges have to be included in their tax forms. If this type of data goes away or is inaccessible, things get complicated.
While this may be seen as a blessing by those who want to avoid paying too much in taxes, traders who have made a net loss — potentially a majority given last year’s bear market — may miss out on a tax refund because of these events.
The Cryptopia Hack
The Cryptopia hack is a notable example. The exchange has reopened and revealed users may be getting a ‘rebate’ in the near future, and while this may be welcomed by investors it may mean tax refunds will be impossible.
This is because it is required to know with certainty that funds are lost. As cryptocurrency and tax specialist Campbell Pentney, from the Bell Gully law firm put it:
The challenge here is that this requires a degree of certainty that the funds are absolutely lost and the portion that is missing. One positive step is that traders can now reclaim their trading records which are vital for tax purposes.
Sitting out and waiting for things to follow their course is also not an option for cryptocurrency users who lost funds in these incidents. If users aren’t able to get refunds and still have cryptocurrency-related taxes to pay, they’ll have to do so. This, as not paying them is seen as tax fraud, and can lead to a prison sentence of up to five years, or a $250,000 fine.
There are, however, tools out there to help cryptocurrency users keep track of their sales and transactions, and manage their taxes. While some exchanges provide built-in solutions, an option to consider is BitTaxer, which supports most major crypto exchanges, and is designed both for individuals and CPAs.
BitTaxer’s software helps keep its users compliant with the IRS’ guidelines around cryptocurrency taxation. To use it, users either add transaction data from their records, or upload data from their exchanges, and classify transactions that aren’t buys and sells.
BitTaxer then takes care of everything else, and calculates gains and losses. It also attaches the proper forms that need to be attached to users’ tax refunds.
BitTaxer provides a holistic and comprehensive tax solution for users to account for any type of virtual currency, cryptocurrency or digital asset transaction. BitTaxer gives special attention to the utility of Virtual Currency as both a capital asset and a method of exchange.
BitTaxer is the fastest, easiest, and most accurate way to calculate and file income, deductions, gains and losses from your virtual currency trades. CPA-Approved, live support, and all major exchanges.