Crypto traders may have important tax concerns on their thoughts due to the startling rise and fall of some cryptocurrencies, such as Bitcoin and Ethereum. Even individuals who hold the cash, much alone trade it, need to take precautions to ensure they don’t break the law because the Internal Revenue Service (IRS) is ratcheting up its efforts. Given how the IRS views cryptocurrencies, that might be simpler to accomplish than you imagine.
Brian R. Harris, a tax lawyer at Fogarty Mueller Harris, PLLC in Tampa, notes that the IRS is currently focused on a very large enforcement area. They’re making a lot of headlines by targeting anyone who owns, trades, or uses cryptocurrencies. These individuals may be the subject of an audit or compliance check.
Therefore, there is even more need for users of well-known cryptocurrencies to be aware of the legislation and any potential taxes associated with their transactions. The good news is that the way the IRS views cryptocurrency is generally the same as how it views other capital assets like equities and bonds. The bad news: Using cryptocurrencies to pay for goods and services is challenging as a result of this treatment.
Prior to FY 2022–2023, the Income Tax Act did not directly implement cryptocurrency tax; instead, most taxpayers were able to profitably cash out their crypto holdings by declaring their earnings as capital gains or business income and paying the corresponding taxes. It was therefore obvious that there would be some unease in the bitcoin business with the adoption of new income tax laws for cryptocurrencies.
The new tax laws mandate that profits from the selling of cryptocurrencies and NFTs be taxed at a rate of 30% (the highest tax level). Contrary to other asset classes, crypto coin losses cannot be offset against profits, expenditures cannot be deducted, and there is no reduced tax rate for long-term capital gains for individual investors.
The government has slapped 1% TDS on every cryptocurrency transfer in order to track transactions. This is now in effect as of July 1, 2022. The capital of intraday traders would be considerably impacted by the new TDS provision. The money will be held captive for up to a year until refund tax returns are submitted.
Industry reports state that once the crypto tax law went into force, there was a decrease in the amount of cryptocurrency transactions. And analysts predict that the quantities will continue to decline. However, the government released clarifications for the new TDS law before it went into effect. By giving cryptocurrency trading platforms TDS compliance responsibilities, an effort is made to lessen difficulties for cryptocurrency traders.
The TDS clause in the current client agreements is anticipated to be included in the exchanges. Additionally, they might need to explain to investors how TDS will affect wallet balances. They must maintain a record of each transaction and comply with TDS reporting requirements. In addition, they would gain by giving their clients a complete view of their profits and losses as well as the tax consequences of transactions. Investors must consider the potential tax consequences in advance and calculate their quarterly tax obligations.
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Also Read: Cryptocurrency Exchanges in India: Legal, Popular and Gaining Momentum
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