G-20 Okays Cryptocurrency Taxation

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Regulation of cryptocurrencies has been a long time coming with the process full of twists and turns. Many countries have set up legislation or are in the process of doing so; it’s not unnatural that the question of taxation came up with it. The G-20 has come up with a document that stipulates exactly how cryptocurrency transactions are to be taxed.

The document is a huge milestone in the crypto world and the fact that countries came together to push for taxation laws shows that crypto is here to stay and this document will be fundamental in allowing digital assets to be widely and effectively accepted.

How does it work?

Digital assets are regarded as investments and as such, fiscal regulations require that one pays taxes on profits made and on transactions carried out. It is no doubt that the virtual assets are posing a difficult challenge on matters taxation. Cryptocurrency investors and enthusiasts have been having a blast not paying taxes, or rather skirting the legal requirements to report the gains they have made via these investments and pay taxes. I would not blame them with such an unpredictable market with too many risks involved if they found ways not to disclose their investment gains.

The IRS is looking for defaulters actively and recently filed a motion in federal court asking that Coinbase, the top crypto platform for buying and mining cryptocurrencies, to hand over transaction reports of all users who received more than $20,000 and they won, getting records of more than 14,000 users.

Cryptocurrencies have been very volatile since their inception, which makes it difficult for one to keep track of losses and gains. The U.S issued a regulation, Notice 2014-21 that treats virtual currencies as property for federal taxation purposes. According to the document, taxation of cryptocurrencies is calculated according to basis (price the taxpayer paid for the cryptocurrency asset).

This calculation is also difficult as investors transact every day and every cryptocurrency transaction attracts a tax penalty. Keeping track of losses or gains during transactions is a difficult task which means users have to constantly track and report their transactions.

The document advocated for by the G-20 forum aims to use ‘internationally recognized’ regulations across the board in every signatory country’s economy. As much as this move is brilliant, it does pose a challenge as these economies are not alike or on the same page as far as adoption of cryptocurrency, regulation or even taxation is concerned. The document almost entirely relies on the evolution of the crypto market.

The aim is to generally prevent fraud, money laundering, terrorism and illegal fundraising among other financial crimes by offering an internationally recognized remedy. Section 25 of the document reads as follows ‘We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed.

The document is still raw and will not be fully unveiled until 2020. The question remains on if it will effectively regulate digital transactions, virtual assets and most critically, will it be adopted by the world’s economies?

 

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