If you’re a crypto investor, then this blog post is for you. Whether you’ve been investing for a week or ten years, the thousands of pages of tax regulations can be overwhelming – and that’s before we even get to the software that lets you automatically scan through your wallet and classify your purchases as short-term or long-term. With crypto taxation being so difficult, it’s no surprise that many people try to avoid paying taxes by not reporting their crypto profits, leading to serious consequences such as fines and jail time.
This post will explain why crypto tax in India is so complicated while also highlighting the role that portfolio software can play in tracking and taming this beastly financial monster. Let’s get started.
Cryptocurrency is a relatively new phenomenon – but it’s hardly a new idea. The first time the idea of virtual currencies made it into the news was back in 1995, when a Canadian programmer named David Chaum created an electronic cash system using cryptography. This digital currency was called “Digicash” and later became known as “BitCoin”. In the early days, bitcoin could only be spent by swapping them from one digital wallet to another.
Virtual currency – This was the normal income tax treatment – late in 2014, the IRS ruled that bitcoin would be treated as property. Hence, any profits from the sale of bitcoins would have been taxed at the capital gains rate. Barter transaction – Some people treated the trading of bitcoins for other goods and services as a barter transaction, which meant that no taxes would be owed on these types of transactions. Currency exchange – One person decided to report his bitcoin payments as income and then used an arm’s length pricing method to determine its value in dollars.
In March 2014, the IRS conducted an investigation into bitcoin and other cryptocurrencies – it concluded that no existing tax regulations applied to cryptocurrency. The agency also stated that the only way for the IRS to tax virtual currency would be to create new legislation or changes in existing legislation. Furthermore, the IRS demanded that all taxpayers who had made a profit from their cryptocurrency investments had to file a special form (Form 8949) along with their 1040 income tax returns.
Just about every cryptocurrency has a website or an online forum where you can track your investments. If you have over $1,000 in cryptocurrencies, then chances are that you’re tracking it with a portfolio management app. Crypto portfolio management apps allow you to review your portfolio allocation, track price movements and even keep track of all the rumours surrounding various coins in the market. .
While the apps do a fairly good job at tracking your portfolio, they can also be a major source of problems. Because of their nature, every single transaction you make is recorded in a log – and this log can then be used by the IRS for any kind of audit.
If you are a crypto investor then i will suggest you Binocs. Binocs is a crypto portfolio management software which will help you to track your portfolio and calculate taxes at ease of your finger.