2020 is coming to a close, and we wanted to reflect on the achievements and progress that we’ve made here at ZenLedger this year.

We also want to thank our customers for providing us with feedback so we can continuously improve our product for you. We are working hard to make sure that doing your cryptocurrency taxes with us is easy and stress-free.

A special highlight this year was the launch of our resolution center which helps customers resolve missing or incorrect data in their transaction history, and review any historical cryptocurrency tax income such as mining, staking, lending, gifts, or even exchange rewards like airdrops and forks.

In 2020, we had over 15 million transactions routed through the ZenLedger platform, so the resolution center was a must!

We are proud to say that ZenLedger supports more exchanges, coin types, wallets, and DeFi protocols than our competitors, and are continuously adding more integrations. We also support Margin Trading, Staking, and Lending.

Here is a 2020 highlight of new features and benefits that we added to ZenLedger this year, so you can see why we’re the best crypto tax calculator on the market. And, a small taste of what’s to come in 2021!

🔰 DeFi

We are on a mission to be the go-to resource for DeFi taxes and are leading the way with integration for 20+ DeFi protocols. We are proud to say we were the first to launch and integrate DeFi support. This year we also launched our reconcile center which has built-in special algorithms to reconcile your DeFi tokens.

DeFi Integration Highlights:

• Zerion
• Defisnap
• Aave V1 + V2
• Uniswap V1 + V2
• Binance DEX: Track Yield Farming Swap
• Synthetix Network Token (SNX)
• Polkadot (DOT) Support is live and includes: DOT Staking, Old DOT to Mainnet
• WETH, WBTC, YFI
• Compound
• LUNA Coin Blockchain Support
• Kava Coin Blockchain Support
• Balancer Protocol

🚀 Exchanges

We support over 400+ exchanges. Exchanges added this year.

• Okcoin
• Tidex
• OKEX
• CashApp
• Lykke
• Cex.io
• Vinex

💼 Wallets

Wallets added this year.

• Trust Wallet
• Ledger Live Parser
• Mycrypto Wallet
• Coinomi Wallet
• MetaMask Wallet
• Exodus Wallet
• Tezos (XTZ) V2

🏵 Tokens

We support over 7000+ tokens. Tokens added this year.

• BEP2 Token Ecosystem
• Bancor Network
• EverCoin
• Support Coin: VALUE, VETH, YFV, EMN, STA, PRQ, RARI, DIA, KAI
• JOY
• NFT & ERC-721
• ETH Complex Fee Support

🧩 Blockchains

We support 37 Blockchains, the HIGHEST number compared to other crypto tax and bitcoin tax providers.

Blockchain Support Highlights:

• Harmony (ONE)
• Syscoin (SYS)
• Vertcoin (VTC)
• DigiByte (DGB)
• Verge (XVG)
• Aion (AION)
• Zillaqa (ZIL)
• Algorand (ALGO)

📈 Margin Trading

We now support margin trading for Poloniex, Deribit, Kraken, Liquid, KuCoin, BitMex, and Gemini, and can handle these for you.

• Margin Trading Fee
• Margin Trading Gain
• Margin Trading Loss
• Margin Trading Rollover
• Margin Trade Settled
• Staking Reward

🔒 Security

We care deeply about our clients’ privacy and now offer 2FA (two-factor authentication).

📍 Tax Professional Suite

We offer the most robust features for tax professionals to use ZenLedger, and we launched a new portal for you this year. In our latest release, you now have a master view of all of your client’s transactions in one easy dashboard. Tax Professionals can also be invited into ZenLedger at no cost to complete their client’s crypto tax forms.

🤝 Partnerships

We have some of the best partnerships in the crypto space! We also have some exciting developments for 2021, and can’t wait to announce those next year.

• Celsius
• Delta
• Casa
• Lolli

🔮 What’s to Come for 2021

We are working hard to bring improvements across the entire ZenLedger ecosystem, including a new UI, a new user-friendly dashboard, and overhauling our website. And as always, we are adding integrations as fast as we can!

Have cryptocurrency tax or bitcoin tax questions for us? We’re all ears!

Drop a note to hello@zenledger.io or visit us over at our website https://zenledger.io/

See you all in 2021!

We have some exciting feature updates to announce this month! If you invest in DeFi, ZenLedger is THE best option for filing your crypto taxes. Our competitors claim they know DeFi, but we are leading the way with 20+ integrations, more than any other crypto tax software provider.

We are also the first to support WBTC and DOT!

Recent ZenLedger Feature Launches:

• 2FA (Two-factor authentication)
• WETH, WBTC, YFI
• Margin Trading Support for Poloniex, Deribit, Kraken, Liquid, KuCoin, BitMex
• Polkadot (DOT) Support is live and includes: DOT Staking, Old DOT to Mainnet Migration Handling, DOT Blockchain Transfers, and Tracking
• Latest DeFi integrations: Balancer, 1inch.exchange, Synthetix

We are continuously adding new integrations and will have support for Steem, Wax, and TokenSets shortly. If you don’t see an exchange, wallet, or blockchain that you have used just let us know. We’ll add it quickly or jump in to help you get it all squared away with our custom CSV support. Email us at hello@zenledger.io

What ZenLedger Customers Say:

“The software saves me, literally, thousands of dollars in tax preparation fees, every year. My accountant knows very little about cryptocurrency and has admitted that he would have had to spend dozens of hours, trying to figure out my crypto transactions. ZenLedger does all the work and I just send my accountant my completed tax forms in an email, and my taxes are done!”- Dale M., Colorado

“Yes, I think I am ready to download the forms. Thank you so very much! I can’t thank you enough. I only hope I get better at this for next year’s tax season. You and your team are phenomenal!” - Terri G., Texas

Crypto 101 Podcast

Earlier this month, ZenLedger COO, Dan Hannum, partnered with Crypto 101 Podcast to discuss all things crypto tax.

Dan shared his thoughts on the challenges of building tax-related software, the current regulatory landscape surrounding crypto taxation, and frequently asked questions from ZenLedger’s clients. Thanks to CRYPTO 101 for having us on! You can listen to the podcast here.

Final Words

With ZenLedger, you can easily track your trades, see your profits, and generate the crypto tax forms and financial reports you need in a flash. And, if you are preparing for tax-loss harvesting season — we are here to help! Get a head start by viewing our Complete Guide to Crypto Tax-loss Harvesting here.

Stay tuned to this space for a very special ZenLedger promotion next month!

According to a recently posted Wall Street Journal report, the IRS is gearing up to deploy a change to the 2020 tax form that directly affects crypto investors. By now, it is no secret that there is an ongoing plan for increased IRS enforcement on crypto.

For context, 2019 was the first time the IRS asked if an individual had participated in buying, selling, or holding digital assets by putting the question on the Schedule 1 form — not necessarily requiring an answer. But fast-forward just 1 year later, and the IRS has chosen to highlight the question on the first page and place it above the fold on the Standard 1040 tax form. In changing the positioning of the question, the IRS is now requiring an answer to this question.

“At any time during 2020, did you sell, receive, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

You must either check “Yes” or “No”.

ZenLedger’s Chief Operating Officer, Dan Hannum, gave an interview for the WSJ report and was asked how many taxpayers he thought actually checked the crypto box on the 2019 form. “I think fewer than 150,000 crypto owners filed required tax forms for 2017, 2018, and 2019, based on my current knowledge.” This number will obviously increase next year, as global users holding crypto assets now top over 100,000,000.

So, what does this mean for you?

The IRS is getting much more serious about compliance and all crypto gains, losses, and even passive income from staking or interest-bearing wallets should be reported on your taxes in 2020. Even if you have multiple exchanges and wallets spread across various platforms, you’ll need to gather all of your transactions and report on them.

To hear the specifics steps you should be taking to ensure you’re accurately reporting crypto transactions on your tax returns, check out our latest ZenLedger on-demand webinar here.

Thankfully, ZenLedger can help you easily file your taxes with our crypto tax software as we offer integration with all major players and full DeFi support. We can even help you amend previous tax year forms! The best part: ZenLedger has live support available daily via online chat, email, phone/text, or by appointment — we want to help you succeed in navigating these waters.

There is no doubt that there will be increased IRS enforcement on crypto taxes in 2020, but with ZenLedger and our crypto tax calculator and experienced team, we can help take away the stress and simplify the complicated bits. Reach out to discuss!

IRS Form Samples:

2019 Schedule 1 Form — https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

2020 Sample 1040 Form — https://www.irs.gov/pub/irs-dft/f1040-dft.pdf

Originally published at https://zenledger.io on October 7, 2020.

With the October 15th, 2020 tax deadline fast approaching, we want to remind you that our best-in-class crypto tax software is available to get your taxes done easily and stress-free. As chaotic as things have been this year, you can still rely on our knowledgeable and friendly customer service team to help you file quickly and accurately right now. Please reach out anytime (phone, chat, email) and we’ll get right back to you! We also work with tax professionals.

For a limited time, we are offering 20% off all first-time purchases of any ZenLedger product with discount code: ZenLedger20

This special discount code expires on October 15, 2020*. Redeem your code here.

ZenLedger is also pioneering DeFi support with integrations such as Aave, Uniswap V1 + V2, Compound, Dharma, and Zerion just to name a few. We were the first and fastest to integrate DeFi support, and we also provide the most robust CeFi support. If you’re one of the crypto traders or investors who have been experimenting (and sometimes making great profits!) in DeFi, we want you to be fully taken care of this tax season. And, we’re ready to help you claim your UNI airdrop as well.

We are continuously adding new integrations and will have support for Balancer, dydx, and TokenSets shortly! If you don’t see an exchange, wallet, or blockchain that you have used just let us know. We’ll add it quickly or jump in to help you get it all squared away with our custom CSV support.

Below are some highlighted feature launches, but if you would like to view the full list, please go here.

Recent ZenLedger Feature Launches:

• Support for Uniswap v1 and v2
• Support for margin trading on Gemini and Kraken
• Robust Tax Professional portal software release
• Tools (Resolution Center) to help customers resolve missing or incorrect data in their transaction history

What our Customers Say:

“10/10. While inherently complicated, ZenLedger does a fabulous job of streaming the process of reconciling complex transactions, token transfers, and so forth. And their “How To” tips and guides are really helpful. Thanks for taking the chaos out of the mix. Much appreciated!” -Dave M.

“10/10. The people are so helpful! I don’t know another product out there that makes it so easy to track crypto transactions. Keep up the good work!” -Charles T.

With ZenLedger, you can easily track your trades, see your profits, and generate the crypto tax forms and financial reports you need in a flash. And, if you filed for an October 15th extension — or are just preparing for next tax year — we are here to help!

*Discount code cannot be used on our tax professional plans.​

When cryptocurrency investing first became popular, hardly anyone paid taxes on profits. However, as the market became more regulated, authorities tightened taxation. Let’s dig into cryptocurrency investment and taxation together and discover ways to optimize your crypto taxes.

A unique feature of investing and trading cryptocurrency is that cryptocurrency is a cross between an asset (for example, stocks) and currency (for example, the US dollar). An analysis of the basics of cryptocurrency is very different from an analysis of any other financial asset. Traditional methods of measuring value do not work in the crypto industry, mainly because in many cases cryptographic data is not stored anywhere in a central hub. In fact, most cryptocurrencies and their blockchains are decentralized, which means that no central authority is responsible for it. Instead, power is distributed among members of any given blockchain community or crypto community.

In most countries, including the United States, you have to pay capital gains taxes on your cryptocurrency activities. The US Internal Revenue Service considers Bitcoin and other cryptocurrencies as property; consequently, crypto transactions are taxed on capital gains. There is still the possibility that authorities can make adverse changes to tax laws, such as limiting deductions, raising tax rates, and eliminating tax benefits.

The best approach to earn profit in the crypto market is to optimize crypto trading, find means to minimize taxes, and exclude risks associated with investing in digital assets. Let’s consider these steps in detail.

Optimization of Your Trading Activity

Reporting on your crypto-income and capital gains can be a complicated process. You have to keep track of all your taxable events. Every time you sell or exchange your crypto assets for another crypto or for goods/services, you trigger a taxable event. Furthermore, if you trade across multiple exchanges, this complicates tracking and reporting.

There are a lot of things to keep in mind when evaluating your crypto activities. For instance, hard forks. The IRS has clearly stated that hard forks and airdrops can be taxable. For example, if you have Ethereum and it undergoes a hard fork that pays you an equal amount of a new cryptocurrency, in addition to your initial Ethereum assets, you have to pay regular taxes on new free coins as opposed to a capital gains tax in the long run. You pay these taxes based on the value of the new cryptocurrency on the day you receive it. The IRS issued recommendations regarding taxation of hard forks. Be sure to consult a tax specialist and stay ahead of the game by tracking all of your crypto records.

Reporting International Cryptocurrencies

The cryptocurrency market and its rules are constantly evolving. That is why you should be aware of all your cryptocurrencies. But even if you invest in cryptocurrencies outside the US, you must report it to the IRS.

If you reside in the United States, you may need to file a FBAR for crypto if you ever exceed the amount of $10,000 that is held in foreign cryptocurrency exchange accounts at any time of the calendar year. Make sure you are aware of the crypto trading rules of the IRS as they can change. Be sure to consult a tax specialist.

Note: Remember that you are responsible for knowing the tax consequences of your cryptographic activities. The IRS is pursuing cryptocurrency investments inside and outside the US. This even forced Coinbase to flip the records of its customers in 2017. Thus, people who simply did not know they had to pay taxes got into trouble just like those who tried to hide their crypto investments.

Tax Optimization

Cryptocurrency taxation is still a fuzzy area. Most regulators cannot even agree on the basic concept of what the token represents. And, of course, different countries have different rules. That is why it is extremely important to conduct a comprehensive tax audit before developing an investment strategy. After receiving information about the risks, you will be at the top of your game. Knowing your risk tolerance, you can create a strategy that protects you and your wealth.

Use a Crypto Tax Tool

One of the greatest ways to save on your taxes on cryptocurrency investments is to include the entire history of trading in crypto tax software. Such programs have built-in tools to analyze and optimize gains and losses reports to enable you to find ways to minimize taxes. You can easily import your trading archives by connecting your cryptocurrency exchange accounts. Once your history of transactions is uploaded, the tool will analyze it, calculate gains and losses, and provide a tax report with one click.

Open a Crypto 401(k) or IRA Retirement Account

Utilizing a retirement account such as IRA to buy crypto, you can achieve the deferment of taxes(sometimes you may not pay at all). This contradicts the use of the traditional cryptocurrency exchange when the income received from the sale or trade of cryptocurrencies is taxed for the same year. IRA appears to be an efficient tool to reduce taxes, and it will be even more useful when crypto will become a more stable long-term value asset.

Look for a Threshold

Many countries provide an opportunity to make duty free investments, often in the form of a capital gains threshold. If you don’t cross that threshold, you will not have to pay taxes. Countries also offer specially designed investment banks that are not taxed or have certain conditions, and meeting these requirements gives the owner tax benefits. Examples are individual savings accounts, more commonly known as ISAs in the UK, where investors are allowed to invest a certain amount of money each year (announced by the government at the beginning of each fiscal year) to trade or invest, for which they are not required to pay taxes. This bank provides a duty-free investment opportunity in addition to the usual duty-free threshold, which is calculated for investments outside this container. Therefore, investors are strongly advised to consult with a professional accountant to discuss their tax issues and explore the options available to them in their countries.

The only way to achieve your investment goals is to invest at a risk level that matches your assessment of risk tolerance. You can measure your risk tolerance, taking into account objective indicators such as your investment goals, the time horizon for each goal, the need for liquidity, etc. You can increase your risk tolerance by setting long-term goals, increasing your savings, using methods other than online investments, and reducing your need for current liquidity. These things, of course, are easier said than done, especially when you consider that you never know when your finances will hit you.

To analyze the price behavior of cryptocurrencies, you need a charting tool for proper analysis. But your work as an investor is not finished when you earn or lose money. As cryptocurrencies become a recognized asset, you need to make sure that you fulfill your liabilities for living by paying taxes. To do this, you need to track your trading activity. Most crypto exchanges and brokers provide trading tools, such as charts for technical analysis. However, their charting services may not allow you to use advanced technical analysis methods. In this case, it is better to use professional instruments.

Liquidity Risks

By definition, liquidity risk is the risk of the inability to quickly sell the asset at a reasonable price. Liquidity is important to any traded asset. The Forex market is considered the most liquid market in the world. But even there you might discover a liquidity problem. If you trade currencies with a very low volume, you may not even be able to close your deal, because prices simply will not move! When liquidity is low, the risk of price manipulation also comes into play. One large player can easily move the market to his advantage by placing a large order.

The cryptocurrency market whales often move small altcoins using their huge capital. On the other hand, as investing in cryptocurrency becomes more accessible and acceptable, the market may become more liquid. Increasing the number of reliable cryptocurrency exchanges will enable more people to trade. Crypto ATMs and payment cards appear to help increase cryptocurrency awareness and recognition in day-to-day transactions.

Final Words

ZenLedger will help you manage your crypto taxes with our crypto tax software. Our tool prepares profits and losses statements for you and your tax professional. Whether you are a miner, a day trader, or a Hodler, ZenLedger helps you find ways to minimize your tax bill.

Our team is available 24/7 and ready to help resolve any issues with your tax report. Feel free to contact us at any time! Don’t postpone your tax filing. Do it now!

Originally published at https://medium.com on July 9, 2020.

Cutting your tax bills is always desirable. But it’s even more important to do it the right way to avoid any potential trouble with the IRS. If you are a crypto holder, you know perfectly well that trading cryptocurrencies is a risky business because the value of crypto coins fluctuates wildly. It’s simply impossible to foresee when the next to-the-moon price spike may happen to your favorite coin. The same is almost true for sudden price downfalls that can leave you nearly bankrupt! But it’s good that the IRS is tolerant of risk-taking investors. You have a few legal ways to save on your taxes, especially if your crypto investments have lost value since the time you acquired them.

Given that the value of the crypto assets is so volatile, you have a great chance to reduce your taxes by 21% or even more! Let’s review a few tips on how to save a pile of cash on your taxes and never make the IRS mad at you in the process!

1. Tax Loss Harvesting: Save Up to $3K on Taxes!

No need to overpay in taxes when your crypto assets lose value. You’d better harvest your capital losses and save your cash! Since tax loss harvesting is a completely legal technique, it’s a good way to significantly reduce your total tax bill and partially remove the tax burden from your family budget, even when it comes to ordinary income (you can offset up to $3,000 of your taxable income). Here’s how it works.

When you’re holding some devalued crypto tokens, you can sell those assets off to realize a loss and thus correct the capital gains you obtained earlier in the given tax year. (Or if you have no capital gains, then deduct it from your other income, such as your salary.)

For example, if you buy some crypto, let’s say for $10k, and a few months later you sell it for $9k, then you realize $1k capital losses. If you have any gains from other capital investments, such as bonds, gold, real estate, etc, you should deduct $1,000 from that amount first to calculate your net capital losses or gains. If you don’t have the capital gains, the loss gets deducted from the rest of your income. Let’s say your annual salary is $46k. Then your taxable income reduces to $45k for the year. You win!

If your losses surpass $3,000 and are not covered by other capital profits for the year, you can bear the said losses forward to future tax periods and offset those taxable gains at their cost. That’s a double-win! Another good thing about crypto is that it doesn’t fall under the IRS’s Wash Sale Rule (as it is a property), so tax loss harvesting works perfectly well for it.

ZenLedger makes the tax harvesting process really fast, simple, and accurate. It automatically aggregates your transactions across all your wallets and exchanges, so it helps you find tax loss harvesting opportunities with a bird’s-eye view. You can scan your records from time to time to check out what opportunities are available and then selectively review them as you and/or your accountant see fit to write off income.

2. Sharing is Saving: Transfer your Crypto as a Gift!

Did you know that gifts under $15,000 per year are not taxed by the IRS? You can give away your crypto assets up to the mentioned value to your trusted friends and family members to decrease your tax liability in crypto coins without selling them. Remember that the gift receivers will be obliged to pay tax if they use, sell or trade the crypto coins they got from you. If the gift value exceeds $15,000, the giver should fill out a gift tax return using Form 709.

Another similar way to get tax deductions with your crypto is donating it. Donations are not only good to support some projects or charity initiatives, but they also allow you to save on taxes. You can donate your crypto assets, and you’ll get a deduction for these donations on Schedule A of Form 1040. The amount of the deduction relates to the period in which you hold your assets. If you donate a crypto-coin that you keep for over one year, the deduction is equal to the fair market value at the time of the donation.

3. HODL. The IRS Rewards Patience.

Hold your cryptocurrency longer than one year and enjoy much lower taxes. The IRS encourages long-term investors, not speculators, and it’s a wise approach! It means that the capital gains rate is lower for property that is held for over a year. Selling crypto coins and tokens that you have held for 12+ months may be free of taxes in certain cases because long-term capital gains are taxed at preferential rates (the tax rate depends on your income level and filing status). Short-term capital gain rates are between 10% and 39.6%, while long-term capital gain rates fall between 0% and 20% depending on your income.

4. Hire a Tax Professional. Is it Expensive?

Hiring a CPA sounds like obvious advice, but it’s not as simple as one might think. A qualified accountant can surely look to your personal situation and help you save cash based on the specific details of your transactions, amount of income, tax history, etc. That kind of help can be expensive, but if your crypto holdings are large enough, you definitely need a professional who can help you sort the details and avoid even more costly penalties from the IRS due to inaccurately accounted crypto (serious cases of tax evasion can be even prosecuted by law enforcement). Unfortunately, it’s not easy to find an accountant who is a true expert in cryptocurrency and related matters, and if you find one, they’ll surely offer you a high price tag for their services.

Happily, ZenLedger has a few readily available plans for large crypto holders, traders, or miners. Those plans include hours of assistance from crypto accounting professionals who will help you define issues and opportunities in your crypto assets, assist you in paying your taxes correctly, and save you as much as possible at a reasonable price!

Originally published at https://medium.com on July 9, 2020.

The global economy is plunging into crisis. The COVID-19 first paralyzed production in China, and then stopped hundreds of enterprises in Europe and Asia, followed by the United States. The sudden disruption in the global economy could instigate a global recession in 2020. According to S&P analysts, the annual growth of world GDP will not exceed 1–1.5%, and the second quarter of the year will be the hardest.

In order to prevent poverty and a serious economic crisis, all the countries considered plans to increase budget support for their economies. Support is expressed in an increase in direct budget allocations, a reduction in tax payments or their deferral, and the provision of state guarantees to the financial sector for transactions in the real sector.

Let’s discover what you can do to shorten your crypto tax expenditures during this difficult time.

US Measures to Mitigate the Covid-19 Crisis

The COVID-19 pandemic harmed small and medium-sized enterprises (SMEs) the most. In order to somehow cope with the crisis, companies are trying to restructure their businesses. They can focus on online operation, reduce production volumes, and send employees on compulsory holidays. But this is not enough. Without the support of the state, the lion’s share of small companies would not survive the consequences of the coronavirus.

The US federal law called Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was approved on March 27, 2020. It was accepted in accordance with the legislation on emergency situations in the country. It will provide for loans to save jobs and simplified provisions for loans to SMEs, which continue to pay wages. The volume of budget funds for the SME aid plan is $350 billion. It grants up to $10 thousand for SMEs to cover operating costs and a provision of credits up to $10 million for companies with up to 500 people. All costs of the loan aimed at salaries, rents, and debt can be written off (not repaid) provided that jobs are saved by the end of June.

During the pandemic, the USA also decided to allocate direct cash payments to all US citizens with an income of fewer than $99,000 per year. The size of the payment was $1,200 per 1 adult (maximum size, with a decrease depending on the average wage) and $500 per child. The amount of the budget funds held for this aid program is $300 billion. Payments to citizens who have been dropped out of their jobs in a crisis are also expected. The amount of this compensation is 100% of the salary for 4 months. The amount of budgetary funds for this aid program is $250 billion.

As for the opportunity to receive job loss benefits for self-employed people who filed tax returns, students can get a loan from the employer up to $5,250. The funds are exempt from income tax. Single-family homes secured by federal mortgage loans may require up to one year for processing of funds. There is a moratorium on fines and evictions for households who have purchased apartments/houses on mortgages insured by the Federal Housing Administration or the Department of Veterans Affairs for 180 days, with the possibility of extension at the request of the tenant for another 180 days. It has been established that all private insurance plans must cover COVID-19 treatment, the vaccine, and all coronavirus tests.

Note: As of now, over 22 million Americans are receiving unemployment compensations, and those payments are not provided for free. Numerous citizens do not suspect that the payments they collect in 2020 are taxable. Thus, even individuals who have experienced a notable decrease in their cumulative earnings because of a work loss in 2020, might nevertheless receive a tax bill in 2021. Tax specialists indicate that you do not need to pay Social Security and Medical care taxes on the received state unemployment benefits, as you pay, for instance, on wages. However, these compensations are considered taxable events by the federal government and probably your state. Furthermore, if you will not pay sufficient taxes during the year, you may also pay fines and interest.

Taxation Measures to Face the Coronavirus

A coronavirus pandemic can trigger a financial crisis, which, according to some estimates, will become more noticeable for the global economy than the 2008 crisis. In this regard, in many countries measures are being taken to support the economy, businesses, and the labor market. In some places, the authorities are going to support ordinary citizens. At present, researchers have studied how governments of different countries are going to help the economy and the population cope with the crisis.

Among the EU countries, the Swedish government has taken the most radical course of action. The Scandinavian kingdom provided an opportunity for businesses not to pay taxes over the coming year. Thus, the Swedish state treasury may not receive about 27.5 billion euros, but the authorities decided that trying to save a business from ruin is worth the money.

Hong Kong authorities have proposed a different approach to stir up the economy in times of crisis. They decided to allocate 10 thousand Hong Kong dollars for each citizen. Economists question the effectiveness of this method. The reason for this is the isolation and poor mobility of residents, who will find it difficult to simply leave their homes and start spending the allocated material assistance. Despite criticism from experts, US authorities resorted to methods similar to Hong Kong’s approach.

Some countries introduce business tax credits to help overcome the effects of the coronavirus epidemic. Secretary of the Treasury of the US Steven Mnuchin also suggested that companies would be granted tax breaks to increase cash flow, adding that he is considering alternatives to the IRS.

Moreover, in countries with large economic assistance packages, a significant share of support is state guaranteed. The main source of direct appropriations and replacement of shortfalls in budget revenues is debt financing. At the same time, some countries, citing emergency circumstances, suspend budgetary rules that limit the volume of borrowed funds. The vast majority of countries do not provide separate measures to support the financial sector at the expense of the budget. Large and small businesses are supported through approximately the same set of measures, but the specific list varies from country to country. As a rule, this set includes guarantees and preferential conditions for loans, a temporary moratorium on bankruptcy proceedings and deferrals, a reduction of tax payments, and the cancellation of fines and penalties for late payments.

Minimizing Your Crypto Taxes During the Pandemic

Regardless of what COVID-19 will do to the crypto market, you still need to pay your taxes by the 15th of July. And we know ways to reduce the amount you owe to the IRS.

Reduced Income Tax on Mining

In the United States, you can get a better tax if you are setting up a company or business entity for your mining activity instead of mining as an individual entrepreneur. Thus, you can take advantage of tax benefits that business owners receive for paying for business-related expenses. Business owners can get a better tax rate than individuals. Is there a high-end Bitcoin mining computer? Report it to your business and reduce your taxable income. Do you have a computer that has mining hardware installed, such as ASICS and the expensive GPUS? Do you spend a ton of electricity while mining? Congratulations! You can get tax benefits on the rewards you received for mining.

Realizing Crypto Losses

It is vital to remember that claiming losses for tax purposes differs from losses in your portfolio. In general, the tax guidance allows the deduction of only realized losses.

For tax purposes, you can’t deduct a simple decrease in the market value of your holdings as they are not realized. When you sell/trade your assets, these losses become real, and you can deduct them from your taxes.

The Collection of Tax Losses is Crucial

If you convert unrealized losses into realized losses, you can receive a deduction when filing taxes for the previous year. To realize such a loss, you simply have to sell assets that decreased in value. You also have the opportunity to purchase the same assets at a much lower price (without prejudice to the ability to deduct losses), because the wash sale rule does not apply to crypto under current regulations. By the way, a good crypto-tax tool can help collect tax losses.

Note: Capital gains taxes on investments that you held for over a year can be much lower than on those you held for less than one year. So it is much more profitable to be a long-term holder.

Beware of the Margin Elimination Tax

The realization of some of your losses is vital if you want to compensate for the sudden capital returns as a result of the liquidation of the margin. If you trade on margin, there’s a possibility that your primary margin was liquidated because of significant price fluctuations. If you trade at high leverages, even mild market imbalances can compel liquidation, which can result in a capital gains tax.

Loss of Transfers to Offset Future Taxes

According to the tax code, you can claim no more than $3,000 of capital losses in your tax returns. Still, losses over $3,000 can be postponed for an undefined period of time for the future. You can then use those losses to compensate for the future profits of crypto transactions. To take full advantage of this outline, you need to realize your losses as described above.

Withheld Cashouts

Cryptocurrency transactions can be profitable, but remember that you must pay taxes on such transactions.

Individuals pay income taxes. A crypto investor must deduct the amount that he spent to purchase cryptocurrency from the amount in dollars received as a result of “cashing out” that cryptocurrency. The resulting difference should be filed in the tax report.

Checking the Tax Level of Your State

Different states have different tax laws. Some states, such as Florida, are considered “retirement shelters” because you do not have to file individual income and death taxes, and you will receive asset protection and property tax advantages. As for crypto investors, in some states, for example, in Wyoming, there are large tax incentives for cryptocurrencies and companies, since cryptocurrencies are exempt from property taxes. As cryptocurrencies become more and more popular, one can expect that more and more states will develop laws that encourage businesses and individuals to bring their cryptocurrencies and money there. That is why, when paying taxes on crypto, it is important to keep abreast of the latest developments in the industry.

Final Word

Do you need a reliable service to get your taxes organized and completed? ZenLedger is a reliable and smooth crypto tax tool with 24/7 customer support. It provides concise information regarding trading/tax practices. This is the fastest and most friendly free tax tool for investors and cryptocurrency accountants. ZenLedger supports over 300 exchanges, over 3,000 tokens, and over 30 blockchains to quickly download all your transactions.

Click here and see how easily tax reporting can be done!

Originally published at https://medium.com on June 30, 2020.

The beginning of the 21st century was marked by the digital revolution. The trends of digitalization in the financial sector are becoming increasingly apparent. It is known that at one time, gold and silver coins were gradually replaced by paper money. Today, digital money has turned into a new challenge to the generally accepted traditions of money circulation and is turning into a purely conditional (virtual) reality and a key element of a virtual economy.

The Importance of Cryptocurrency Legalization and Taxation

Cryptocurrencies are a brand-new phenomenon of the 21st century, which has become a subject of research for both economists and political scientists. The history of the world’s first cryptocurrency began about 10 years ago, on October 31, 2008. A user named Satoshi Nakamoto published the white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System,” in which he first described Bitcoin as a decentralized electronic payment system. Later, in January 2009, Nakamoto introduced software that launched the first blockchain network.

Now governments around the world are in a hurry to prepare bills that regulate cryptocurrencies since this is extremely important for the entire civilized world. However, very few scientific papers have been written on the subject of cryptocurrencies, which is rather strange, because nowadays the urgency of this issue is intense. In most cases, cryptocurrencies are examined through various economic paradigms or mathematical models, but there are very few such studies. More often there are works about tax regulation, which in most cases repeat each other. It is even more difficult to find a study that provides a full-fledged comparison of different crypto regulation policies by various governmental agencies. That is why the question of regulation of crypto is still open in most countries around the world.

Cryptocurrencies themselves were created on the beliefs of crypto-anarchism (a philosophical movement whose ideas are based on the principles of using strong cryptography to protect personal privacy and freedom). That is, crypto and blockchain — the heart of any cryptocurrency — were created to exclude all kinds of intermediaries, such as banks, states, as well as interbank payment systems (SWIFT). The code of any cryptocurrency is similar to the constitution, which cannot be violated. It is thanks to this “constitution” of cryptocurrency that we now have the money of a new generation (programmable capital). With the help of digital money, you can avoid problems such as account lock-out, capital theft, double withdrawal of funds from the account, long intercontinental transfers, and falsifications of banknotes. Moreover, cryptocurrencies and blockchain are able to completely eradicate corruption.

The U.S has the biggest crypto community, and the largest trading volumes on cryptocurrency exchanges are located on US trading floors. But in this country, there is literally no single regulatory system, since most states have their own cryptocurrency regulatory policies. Thus, Texas, Kansas, Tennessee, South Carolina, and Montana pursue a soft regulatory policy, trying not to harm the development of cryptocurrency, while New York, New Hampshire, Connecticut, Hawaii, Georgia, North Carolina, Washington, and New Mexico have a tough regulatory strategy. If we talk about the federal regulatory system, the reports of the FBI classify cryptocurrencies as “virtual currencies”, and the US Treasury Department includes cryptocurrencies to “decentralized virtual currencies”.

Regarding taxation, on March 25, 2014, the U.S. Internal Revenue Service published a guide with tax rules for cryptocurrency transactions. So, to pay federal taxes, cryptocurrency is equated to property. This means that when making a profit from a transaction with crypto as an investment tool, it is necessary to pay a tax on capital gains. Moreover, cryptocurrency derivatives (futures) are traded in the U.S. on the Chicago Options Exchange (CBOE) and on the Chicago Mercantile Exchange (CME). These trades received a green light from the Commodity Futures Trading Commission (CFTC). Also, the US Securities and Exchange Commission (SEC) from the end of 2017 launched a large-scale investigation regarding fraudulent ICOs (conducting projects for the initial placement of coins, a kind of crowdfunding). Moreover, this structure tested about 100 hedge funds associated with cryptocurrencies. It is worth noting that the US Treasury Department, led by Steve Mnuchin, as well as many other countries, claims that virtual money is often utilized to evade taxation, finance terrorism, and launder money.

Thus, in the U.S., the policy of regulating cryptocurrencies is carried out at the federal level, but in some states this policy is becoming more stringent, forcing many startups to move to foreign jurisdictions. Therefore, it is impossible to explain in which economic theory the United States generally acts with respect to cryptocurrencies.

Why do You Have to Pay Taxes on Crypto?

In July 2019, the IRS began sending letters to taxpayers related to virtual currency transactions. Those residents who have or plan to open a fintech and crypto business in the United States should be aware that each of them can receive a letter from the tax service reminding or notifying of tax evasion. Depending on the type of violation, the IRS sends out four types of letters in the prescribed form:

• Letter 6173 — A letter stating explicitly about non-payment of taxes on operations with virtual currency, which implies serious punishment and fines;
• Letter 6174 — An information letter that does not require an answer, but reminds the individual that it is possible that he or she has an account with virtual currency; the person may not know about the fulfillment of the requirements for it;
• Letter 6174a — A letter stating that the taxpayer reported foreign exchange transactions, but with a violation of the reporting procedure (for example, an error in the form of income: on capital gains or on entrepreneurial activity).
• Letter CP2000 — If you received this letter, it means that the IRS thinks you owe them money and suspects you of crypto tax evasion. It gives the recipients 30 days to reply.

It turns out that even with the slightest mistake in your tax return, a letter from the tax service will not take long to appear. And those who have just started their ICO activities may fall under the scrutiny of tax officials due to ignorance of the US legal framework.

The consequences of tax evasion on cryptocurrency transactions may be different. Depending on the amount and the form of a legal violation, the taxpayer may be subject to civil or criminal prosecution.

According to FATCA law, foreign banks are forced to submit reports on accounts of US residents, and the IRS has taken the initiative to track hidden offshore bank and brokerage accounts. The main task of the IRS is to reduce the activity of dysfunctional companies trying to hide income through offshore companies of third countries or use several foreign accounts to evade taxes.

Meanwhile, The GAO urged the IRS to provide more clarity on crypto taxes. Until this happens, other jurisdictions begin to introduce automated control over fintech projects and cryptocurrency exchanges. In September 2019, the Bank for International Settlements (BIS) introduced a project injecting automatic control of fintech and blockchain by reading DLT data. This innovation will affect both financial companies and cryptocurrency firms.

Saving Extra Money on Crypto Taxes

Even though you can’t avoid paying taxes on your crypto gains, you may have a chance to decrease your tax bill. And here are some hacks on how to do this.

Employ the Tax-Loss Harvesting Method

If the value of your assets in cryptocurrency has declined, then harvest losses to offset gains (when you sell your crypto with a lower value in order to realize losses) can be an excellent means to reduce your ultimate tax account. The collection of tax losses is not something dubious or new: it is absolutely legal to compensate for capital gains from capital losses. Therefore, if you are currently holding on to cryptocurrency, and its value has significantly declined, consider selling it to compensate for the profit made earlier in the tax year.

Be a Long-Term Investor

Since cryptocurrencies are usually regarded as property by the IRS, the rate of capital gains will be lower if you hold them for more than a year. Therefore, if you buy crypto and sell it in nine months, your capital gains tax rate will be more costly than if you traded it in thirteen months. Clearly, your profit or loss depends on the volatility of crypto. Sometimes, even after you pay your tax bill on short-term holdings, you are still left with gains. However, it is worth remembering that a reduced capital gains tax in the long run when you decide to buy/sell crypto.

Donating Your Crypto or Giving It as a Gift

Gifts or donations of a certain amount are tax-deductible: you can give away up to $ 15,000 per year. Although this may look like a radical method to reduce your tax bill, if you are willing to divide your capital with relatives and friends, giving gifts in crypto can be an unusual way to do it. Remember that the person you give crypto to will be required to pay taxes if in case of selling it or trading it into another crypto.

Hire a Tax Professional

A qualified CPA will unquestionably find a way to lower your tax bill. Although resorting to a CPA service might turn out to be quite an expensive move, it eventually pays off by saving you money on crypto taxes. Most crypto investors have no expertise in the taxation of digital assets, so it is a wise decision to hire an expert in this area.

Using a Reliable Crypto Tax Software

A professional crypto tax tool, such as ZenLedger, can be utilized to determine your tax liability. Since you need to determine the value in US dollars for each transaction you executed during the year, calculating your profit and loss manually can be a complicated and sometimes even impossible mission. Crypto tax software is designed to optimize and automate the calculation of taxes on transactions with cryptocurrencies. Both CPAs and individual investors can leverage it. Besides, ZenLedger works with all major exchanges.

Turn Crypto Losses into Tax Gains with ZenLedger

The ZenLedger tool can help any investor to harvest losses automatically. Our Tax Loss Harvesting Tool auto-fills IRS forms and was created exactly for the purpose of offsetting losses on crypto taxation. When you import transactions from all your exchanges and wallets, the tool detects all the possibilities for harvesting losses and ensures that your tax report is accurate and you will not have any issues with the IRS.

Use the tool in four simple steps:

1. Open the tool — pick the “Tax Loss Harvesting” option and initiate the analysis of transactions;
2. Review the results — open the Google Sheet in a new browser tab that contains unrealized losses;
3. Realize the losses — sell crypto in a spreadsheet, thus realizing and harvesting losses;
4. Redeem assets — redeem crypto via your chosen strategy to maintain asset allocation.

Final Word

Enormous progress in the development of digital technology contributes to the expansion of settlements using electronic money. But their purchase, trade, or usage to pay for goods and services creates taxable events.

Using ZenLedger software, residents of the U.S. and other countries can quickly calculate their income from cryptocurrency transactions. In particular, it is possible to import data from a number of major exchanges (Coinbase, Gemini, Circle, Poloniex, Bitstamp, Kraken, Bitfinex, etc.) and then transfer them to the most popular forms for the tax report. In addition to Bitcoin, ZenLedger also supports most other altcoins, including Ethereum, Bitcoin Cash, Litecoin, Dash, and many more.

Originally published at https://medium.com on June 1, 2020.

Nowadays, the issue of cryptocurrency taxation is more relevant than ever. Because we live in the era of information technology, it is important for each of us to understand what is meant by virtual assets and their taxation. Unfortunately, it is impossible to answer this question unequivocally, since each country has its own vision of cryptocurrency taxation. Moreover, the very concept of cryptocurrency differs from country to country, but in some places, it does not exist at all.

In this article, we will consider the most common cryptocurrency tax mistakes and how to avoid them.

Tax Labyrinths

More and more countries are taking steps to recognize cryptocurrencies. U.S. authorities have developed a regulatory system that implements the 2014 guide and its updated 2019 version. However, there are still things to work on.

The problem is not the amount of taxes, but the process itself. Every sale of cryptocurrency that brought profit to a citizen or business is subject to taxation. Citizens are obliged to indicate on their tax returns the rate at the time of acquisition and sale of their coins. It does not matter exactly how someone received their coins. Whether it is a salary or a regular money transfer, at the time of withdrawal to fiat, you have to pay for everything.

For example, someone received a money transfer at the moment when the cost of BTC was $3,500. He/she later sold it for $4,500, making a profit. This created a taxable event. The puzzle here is the timing. In early November, a U.S. student “hit” the $400,000 tax bill on investment in cryptocurrency. According to him, in May 2017, he bought ETH for $50 per token. The cryptocurrency began to rise in price by leaps and bounds, and, as a result, he had $125,000 in his account. The student reinvested this money in an ICO, and, by the end of December, the total portfolio was already worth $880,000.

In 2018, his fortune collapsed to $125,000, which is still very good, given the amount of the initial investment. But as soon as the student completed his tax return for 2017, the authorities calculated $400,000 in profit for tax purposes. According to his statements, he did not withdraw cryptocurrency to fiat, and traded only between tokens.

The cryptocurrency tax system in the United States is complex and incomplete. In 2019, the IRS released a new guide, which the crypto community hoped would simplify taxation. However, the manual mainly focused upon forks and airdrops, and revealed that the IRS itself did not quite understand the meaning of the terms. Clearly, this is not the last guide the IRS will issue.

3 Mistakes to Avoid When Calculating Tax on Crypto

How to get out of crypto tax labyrinths and avoid troubles with the IRS? How can you avoid errors on your tax report when filling in transactional data? Let’s see which mistakes you should avoid in the first place.

1. Not Including Crypto Activities from Previous Years

It may seem like common sense to include only your recent crypto activity when filing annual taxes. After all, why are previous years relevant, especially if you have already reported them?

Unfortunately, the inclusion of your entire trading history is mandatory when filing taxes on cryptocurrency. This is due to the financial concept known as base value. The cost basis is the initial value of an asset when it was acquired by its current owner. Since cryptocurrencies can vary significantly in value over relatively short periods of time, the only way to accurately determine the value basis of a coin is to incorporate your past trading activity. Without this, your reports will be invalid. If you have not kept records, you can use tax encryption software to correct your calculations. The good news is that revising your previous years can actually help you save a lot on your taxes if the records show that you had losses.

2. Ignoring Crypto Losses

While crypto gains are taxed, crypto losses can be used to decrease your tax bill. Many cryptocurrency investors and traders do not know that filing incurred losses on crypto can really save them a fortune. This is a rather common mistake that can cost for taxpayers a lot if they do not use a reliable method of reducing taxable profit from capital gains. It is important to remember that crypto losses work just like other property losses. This means that if you incur any losses as a result of any crypto transactions throughout the year, you can use these losses to compensate for capital gains and pay lower taxes in general. In fact, you can not only compensate for all capital gains, you can also use these losses to offset up to $3,000 in regular income. Another good thing is that at the time of this writing, the Wash Sale Rule doesn’t apply to crypto, which means you can sell your coin at a loss on December 31st and buy it back on January 1st, then use that cash however you want.

3. Inconsistent Cost-Based Methodology

The most widely-used cost basis method is first-in-first-out (FIFO): when the coin that was bought first is also sold first. This method is the most recommended; in fact, it is the default calculation mode. Some people, however, calculate the cost basis of their coins using the last-in-first-out method: the last coin bought will be the first coin sold. Though any of these methods is suitable for use when completing your crypto taxes, it is worth noting that they can lead to different outcomes in terms of capital gains.

Ultimately, the choice of method is left to each trader, but as soon as you start using one method, you are stuck. The IRS does not allow you to change the method used between applications (or at least not easily). If you decide to use a method that does not work for you, you will have to physically send a request to the IRS asking for permission to switch to another method, and there is no guarantee that they’ll answer your request in a reasonable amount of time.

So, nothing is impossible when it comes to successfully collecting all the data and recording it yourself, but it can be a tedious process. At the same time, it has many potential points of failure. For traders who simply do not have the time or opportunity to calculate and file their own taxes, there are accounting professionals who specialize in taxes related to cryptocurrency. It would be wise not to exclude professional accountants or tax firms, especially those who specialize in cryptocurrency.

ZenLedger’s Intuitive Tax Tool

ZenLedger has designed tax software to make it easier to complete tax returns on cryptocurrency. Our solution offers step-by-step instructions for filling out tax returns, and cryptocurrency transactions will be imported automatically. Our tool is also suitable for tax consultants, as it can independently generate tax returns, manage multiple clients, and automate the import of transactions.

Check out our unique, feature-rich software and find out how quick and easy it can be to pay taxes on crypto! We now offer a Free Plan for those with 25 transactions or less, and we just lowered our pricing on all tiers.

Originally published at https://medium.com on May 20, 2020.

In this article, we’ll look at cryptocurrency as an object of civil law and financial regulation, and how fundamentally important it is to create crypto taxation guidance.

The Nature of Cryptocurrency Taxation

Regardless of what one might think about whether it’s good or bad, blockchain technology can be viewed as a milestone and a fundamentally new stage in the development of technology and the economy. Market capitalization of decentralized digital technologies is growing steadily, and the list of types of products and services offered by relevant firms is growing in large-scale flows, as confirmed by market players. Of course, processes related to finances are always on the radar of governments, which control fiat money and establish appropriate “rules of the game” in financial markets with varying degrees of interference. This depends primarily upon the political regime in power. In the context of the wide adoption of digital money, issues related to legal regulation and taxation of cryptocurrency are about to reach the next level.

The main points to be investigated in connection with adoption of blockchain technology in financial markets include:

1. identifying the tax base and taxpayers in terms of transaction anonymity
2. taxation of income received as a result of mining virtual currency, and confirmation of transactions within the system.

Application of specific crypto taxation models and corresponding tax regimes has arisen in response to the evolving legal definition of virtual currency, and, as a result, the development of an approach to determining the tax basis for transactions in Bitcoin. It should be noted that approaches to the issue of cryptocurrency taxation vary depending on the legal status and the jurisdiction in which the taxation model was formed. For example, extending the value-added tax to cryptocurrency depends upon the recognition of property and currency status.

When qualifying crypto from a legal point of view, keep in mind that the foundation of crypto taxation can be found in its economic and legal definition. Today, there is no universal approach to a definition of cryptocurrency. This complicates not only the legal regulation of cryptocurrency globally but also any actual scientific discussion of this topic.

Many countries are now analyzing the possibility of recognizing cryptocurrency as equivalent to cash, foreign currency, and electronic money as an object of obligation rights. As a result, it should be accepted by legislature and law enforcement agencies as digital (virtual) currency, the creation and control of which is based upon cryptographic methods (mathematical algorithms) in relation to full decentralization (the absence of an external or internal controller in the network, which guarantees/confirms correctness in system operations, including the inability to influence participant transactions.

Note: transaction reliability is ensured in the network by blockchain technology (distributed database), the algorithms of which allow you to combine transactions into blocks and add them to the chain of existing blocks to ensure the invariability of the transaction chain via cryptography and sequential hash elements. Continuity is ensured by including the hash sum of the previous block in the current block, which does not allow changes without altering hashes in all subsequent blocks. Mathematical calculations act as a certain value in the physical world.

The key point in determining the tax/legal nature of cryptocurrency is determined by the official positions of tax authorities in states where circulation is not fundamentally prohibited. For example, the tax services of a number of countries, including Australia, Great Britain, Norway, Singapore, and the U.S., have prepared explanations for the way they formulate approaches to taxation issues in relation to Bitcoin.

Currently, with the availability of digital infrastructure, economic agents have the opportunity to engage in real economic activity involving private currencies. These are issued, as a rule, according to cryptography methods, and do not have status as legal tender in any state.

Novel Tool for Investments

Cryptocurrency is becoming a highly profitable asset. Any non-professional investor can increase his/her profit several times over since cryptocurrency is defined according to the following qualities:

• Manufacturability and ease of management
• Democratic entry into the market (valuable for beginners and those without large financial resources)
• The presence of various income-generating strategies
• The ability to create completely passive income
• Lack of reference to any specific territory

In the eyes of the community, these circumstances distinguish cryptocurrency investments from bank deposits and other classic financial instruments, the management of which requires competency, experience, and/or connections. As a result, the purchase and sale of cryptocurrency allow economic agents to increase invested capital in a short time and create a source of passive income.

Based on the supranational nature of cryptocurrency, it can be assumed that there exists a certain jurisdiction with a reasonably low tax burden within which a number of taxes cannot be levied, at least regarding the creation of new units of cryptocurrency. The anonymity of users makes crypto an analog of offshore companies, and despite its essentially different nature (crypto is attractive because of low transaction costs, and tax evasion is not a factor), the risk of erosion of the tax base due to cryptocurrency is even higher. This is due to the fact that it is not dependent on financial intermediaries or banks. Cooperation with these entities currently empowers tax authorities to collect data on capital flows.

In many countries, the first initiatives to introduce cryptocurrency in the legal field were put forward in the exact context of tax regulation and tax administration before the authorities officially recognized its status. The issue of crypto taxation in the U.S. was brought up for discussion back in 2007, and in 2013, the U.S. Audit Chamber (GAO) recommended informing taxpayers about the need to pay taxes with Bitcoin. In 2014, the IRS issued guidance regarding its regulation, and in October 2019, it addressed updates.

Gradually, the scientific community is coming to the conclusion that crypto-entrepreneurship is an income-generating and taxable business.

Conceptual Approaches to Crypto Taxation

In tax theory, it is generally accepted that the process of generating income should be taxed by direct taxes. Regarding indirect taxation, there is a trend in developed countries towards recognizing an exemption from VAT, but as for the direct taxation, there is no unanimous agreement on what the approach should be. Nevertheless, the following tax approaches to crypto have evolved:

• Issuing and receiving cryptocurrency can be recognized as receiving taxable income, which is taken into account at fair market value regardless of sales (U.S., Spain, Japan, Israel) followed by taxation of capital gains
• Establishment of a tax-free minimum for activities “for personal use” (Sweden, France, Australia)
• Recognition of the taxable object of capital gains only when exchanging cryptocurrency for fiat money and establishing benefits in case of long-term investment or small transaction volume (Germany, Singapore, Brazil). It is important to note that financial authorities have not formed a cohesive approach to taxation of cryptocurrency in countries where mining is most profitable, according to Bloomberg. This takes into account factors like the cost of electricity, ease of doing business, availability of renewable resources, average Internet speed, and the average annual temperature (Canada, China, Switzerland, Russia).

What Awaits Us in 2020?

All forecasts are based upon deep analysis of the past. If we want to know how crypto regulation activity is going to proceed, we need to look back at previous years. For now, we can say that it’s all starting to get serious. Let’s consider the cases of BitFunder and Arise Bank.

BitFunder Wallet Trap

The U.S. Securities and Exchange Commission filed a lawsuit in connection with the BitFunder case on February 21, 2018. The SEC requested that the Manhattan Federal District Court prohibit activity from this crypto exchange, and obliged its CEO, John E. Montroll, to return funds received as a result of transactions.

The SEC accused BitFunder of trading valuable securities without proper registration (which means it operated without paying taxes) and making false statements when publicly offering assets. One of the main accusations concerns failure to disclose the theft of more than 6,000 Bitcoins as a result of a cyber attack. According to a statement filed with the court, the charge of misappropriation of cryptocurrency is based upon the fact that platform users deposited crypto directly into Montroll’s crypto wallet, where they mixed with the cryptocurrency of Montroll itself. At the same time, only Montroll retained control of the crypto wallet. To maintain sufficient currency in that wallet, Montroll used the funds collected within the framework of the ICO he conducted, which, according to the SEC, was contrary to the stated fundraising goals. Also, funds from the cryptocurrency wallet were used to cover Montroll’s personal expenses.

The fact that BitFunder did not disclose the use of a “common” cryptocurrency wallet allowed Montroll to hide the cyber attack. In general, the model was beneficial for investors, since Montroll carried the risk of loss. Nevertheless, the cyberattack did not pass without a trace: The resulting cryptocurrency deficit led to difficulties in withdrawals from the wallet by users. Montroll made public statements on this subject, saying the problem was technical in nature. Through BitFunder, Montroll publicly offered tokens for sale that qualified as securities (through listing). The platform was originally created for fundraising and issued tokens secured by enterprise assets endowed with share functions.

At the same time, in the AriseBank case (see below), the SEC wasn’t stopped by the fact that investments, in the respondent’s opinion, were private. In the interpretation of Montroll, funds were a “personal loan with an investment purpose,” but this statement contradicted the fact that some of the funds were used to replenish Montroll’s crypto-wallet and satisfy his personal needs. The BitFunder case is only one special case amid general regulator concern about the security of funds transferred to crypto exchanges.

Arise Bank Case

According to a statement published on the SEC website, on January 30, 2018, the regulator received a court order for suspension of the ICO held by Arise Bank starting in November 2017. For this, it first turned to the interim measure of asset freezing. To protect investors, a manager was appointed and vested with powers extending to digital assets (primarily, cryptocurrency received from investors).

Arise Bank announced $600 million in raised funds. The SEC suspected that the organizers of the project had raised funds for fraudulent purposes. АriseBank has positioned itself as a decentralized bank that provides banking services to consumers using more than 700 cryptocurrencies. As indicated in the advertisement, the project was to create an application for automatic cryptocurrency trade. The difference in this business model was that daily income from the application was assigned to users in the form of a special cryptocurrency that was not identical to the AriseCoin cryptocurrency sold through the ICO. The SEC claims were based on the assumption that numerous AgiseBank statements made during the marketing campaign were knowingly false. Among AriseBank statements that attracted the attention of the SEC, the following should be noted:

• The project’s acquisition of a “bank with a 100-year history” in support of the fact that investor accounts would now be insured under the federal deposit insurance program. In fact, the Federal Deposit Insurance Commission had no information on bank participation in this program.
• An agreement with the VISA payment system confirming that customers would receive bank cards for this payment system (there has been no such agreement as of yet.)
• A lack of information about their criminal past in biographies of project organizers posted on the website and in the white paper. In addition, AriseBank was not authorized to conduct banking operations in Texas and was not insured by the FDIC. An important point is how AriseBank tried to defend itself against SEC claims. The company referred to the fact that it created an autonomously-functioning network of private investors, and did not raise funds from a wide audience. This thesis did not receive a rebuttal, but also did not affect the actions of the SEC. Now, two executives of the scam ICO must pay a $2.7 million penalty.

As we can see, the IRS and the SEC take regulation of the crypto industry very seriously. However, as of today, they have not provided robust guidance on how to define the cost basis of certain crypto transactions or instructions on whether their initial coin offering qualifies as a securities offering.

The process of mapping the future of crypto taxation is still underway, and in 2020, we envision some interesting trends in this area. Currently, there are 2 main bills around the topic being discussed in Congress: The Cryptocurrency Act of 2020, introduced by Congressman Paul Gosar (R-AZ) in December 2019, and the Virtual Currency Tax Fairness Act of 2020, introduced by Congresswoman Suzan Delbene of Washington and Congressman David Schweikert of Arizona. The first seeks to cover gaps in the definition of cryptocurrency and company players in the crypto market while defining which agencies are responsible for regulation and enforcement. The second aims to provide tax exemption for cryptocurrency transactions with calculated gains of less than $200. If this act is adopted, crypto owners won’t have to report their $5 cup of coffee to the IRS.

Based on these two legislative initiatives, we see a couple of trends developing in 2020:

1. Further definition and categorization of cryptocurrency. The Cryptocurrency Act of 2020 defines cryptocurrencies, crypto commodities, and crypto securities.
2. Clarifying which agencies are responsible for the regulation of each category, including licensing, certification, and registration required for issuing or trading or digital assets across markets. According to the Cryptocurrency Act of 2020, the Financial Crimes Enforcement Network (FinCEN) will control cryptocurrency, while the SEC will control crypto-securities. The Commodity Futures Trading Commission (CFTC) will deal with crypto-commodities.

There is a clear trend toward further refinement in terms of defining which types of transactions should and should not constitute a taxable event. In October 2019, the IRS issued new guidance in which it defined the tax status of hard forks. It looks like in 2020, there might be more news and exemptions. For example, the Virtual Currency Fairness Act of 2020 suggests exemptions for crypto transactions with calculated gains of less than $200.

Summary

Innovations have become a decisive factor, acting as an engine and incentive providing advantages to business entities that are able to correctly apply them. It is up to governments to decide whether these innovations will be beneficial for society or have a negative effect. Cryptocurrencies have a number of specific characteristics that are of interest to professional economists and stock market players.

Cryptocurrency is a revolutionary phenomenon of the digital economy that is igniting considerable interest in the private sector and serious regulatory concerns. Cryptocurrency is opening up completely new opportunities for entrepreneurial activity and investment. Its key characteristics are decentralization, anonymity, and cross-border capabilities. These qualities bring certain legal problems and risks for legal entities and individuals using Bitcoin, and also for the security of governments in general.

The trends that we see happening in 2020 mean two things for crypto investors:

1. The U.S. government will continue its efforts to enforce crypto taxation, so if you haven’t filed your crypto taxes yet, do so by April 15.
2. Further clarification and refinement of the rules, including new tax exemptions, will create more savings opportunities for crypto investors. However, this makes the process of crypto tax calculation more complicated: it will have to be automated to provide ease of use and reliability.

Learn how Zenledger can automate your taxes and get the IRS off your back. If you have any questions, please visit our website or contact us via hello@zenledger.io!

Originally published at https://medium.com on April 9, 2020.