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In the United States alone, an estimated 15% of the entire population own cryptocurrency. As of the time of this writing, Bitcoin has already hit a new all-time high, and investors and traders are already in huge profit. However, these profits will come with hefty tax bills. Therefore, many crypto investors and traders are searching for ways to enjoy lower crypto taxes.
There are very smart ways to benefit from lower cryptocurrency taxes without breaking any law in the process. Every successful business today understands the importance of having a tax haven, and they all do everything within their power to achieve that. Investors and traders alike need to understand the need to have a tax haven when it comes to the crypto market.
Many years ago, lots of crypto traders and enthusiasts were completely unaware of the tax implication of trading crypto assets. In 2014, the Internal Revenue Service (IRS) of the United States stated that crypto is considered a property, just like stocks. It, therefore, will be subject to capital-gains taxes whenever it is traded. If an investor holds property for under a year, it will be taxed based on ordinary income tax rates. However, if the property is held for a longer time, then it qualifies for lower long-term capital gains tax rates.
Now the question is, how do you reduce capital gains tax on your crypto holdings in a legitimate way? In this interview, the CEO of ACCOINTING.com, a crypto portfolio tracking software, answers a series of questions regarding lower crypto taxes and crypto taxes in general.
10 Interview Questions For Denis Wohlfarth
There has been a lot of buzz around crypto capital gain tax. How can you explain that to the average crypto trader who doesn't really understand what that term fully entails?
Dennis Wohlfarth
It’s fairly straightforward: Every trade you do if that’s crypto to crypto for example when you sell your BTC position to buy ETH or if you sell your BTC for USD creates a taxable gain. The complexity comes with the ability to keep track of all the historical transactions, especially to define the correct cost basis and proceeds for the thousands of tradable crypto assets. We offer a simple automated solution to our users for this problem.
Many businesses leverage what is known as a "tax haven" to cut down on the amount of money they spend on paying taxes. Is there something like a "tax haven" in the crypto industry?
Dennis Wohlfarth
There are some countries in the world that have very little or zero tax rates on your crypto holdings for private investors. For example: Switzerland, Zug mainly charges for your end of the year crypto holdings with a wealth tax. There are countries like Cyprus, Malta, Bermuda, Portugal, and Singapore which are also considered tax havens. For the concrete case of the US, Puerto Rico is the most common destination for crypto holders to consider moving to.
There have been some blog reports regarding "lower crypto taxes." Is it something anyone can do without breaking any law, or is it completely illegal?
Dennis Wohlfarth
It depends on the country but there are ways to reduce your taxable gains using our tools for tax loss harvesting and tax optimized trading. It’s important to understand the details for your country and we offer explanations for this and how to use it legally.
Since lower crypto taxes can be achieved legally, what ways can investors enjoy or benefit from lower crypto taxes on their crypto holdings?
Dennis Wohlfarth
There are multiple options that investors can use to reduce their taxable crypto gains during the year or at the end of the year. You can make sure to sell the “correct” asset for your specific tax case. If you want to purely reduce the taxes you owe, you can choose an asset that you bought for a higher price and realize losses or sell assets that you already hold for more than 1 year which reduces the tax rate on the gains compared to short term gains.
I have read about a lot of people who made mistakes while filing their crypto taxes. What is the most appropriate and accepted way of filing crypto taxes?
Dennis Wohlfarth
The easiest way to create the correct output files is to use a tool like ACCOINTING.com. We guide you through the process and create the necessary tax documents for the crypto investor so they don’t have to worry about tracking their buy and sell dates as well as their cost basis.
A report on the ACCOINTING.com website revealed that the tax on crypto-assets is based on the nature of the crypto transaction. Can you give more insight into the above statement?
Dennis Wohlfarth
Every country has different regulations for specific crypto transactions. For example Airdrops that you receive could be tax relevant income or not - based on your countries regulations. The same applies to when you sell this received transaction: not every sell transaction creates a taxable disposal, it often depends on how you acquired the asset in the first place.
Cryptocurrency tax reporting can be pretty complex and daunting. Crypto investors are always advised to use crypto tax software for seamless tax filling. You are the CEO of ACCOINTING.com, one of the country's major crypto taxes reporting software; how does this platform or software work?
Dennis Wohlfarth
It's very easy: we consolidate all the data for the single investor from all his exchanges and wallets. The user just has to connect his wallets and exchanges directly with the public address, api connection or upload the trades manually. With that we have all the information about the users crypto ecosystem and can create a full report. We are the middle man that didn’t exist yet in this new industry.
In your expert opinion and experience in the crypto industry with respect to taxation, is it important for crypto investors or traders to review their crypto tax reports with accountants?
Dennis Wohlfarth
It is not always necessary especially if the investor trades only on the big/compliant exchanges like Kraken or Coinbase. We recommend using an accountant when the data is not complete. Also for very complex private tax situations e.g. living in multiple countries we always recommend to use an accountant. Our future goal is to make the crypto tax space so easy that no one needs an accountant for their crypto taxes anymore.
What is the best way for crypto investors to deal with complex crypto taxes?
Dennis Wohlfarth
Use Accointing. It’s simply the best way to consolidate your information into one single source of truth, computing your cryptocurrency transactions for tax purposes in the most accurate way possible, considering your countries tax laws.
As the CEO of ACCOINTING.com, what was your inspiration for starting the business, and what is your mission in the crypto industry?
Dennis Wohlfarth
I had a huge problem filing my own crypto taxes a few years ago so I decided that I need to build my own tool for it. My mission is to make the crypto tax filing as easy as possible and pave the way for the crypto to become part of the global financial ecosystem. I think that the most important part here is to make regulations as easy as possible for everyone and to help everyone to be compliant with the local regulations.
