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New Tax Guidance & Crypto – What You Need to Know

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tax guidance

The IRS has issued its first tax guidance for cryptocurrency since 2014, a five-year period in which the crypto industry has only gotten bigger and stronger.

It is also a period that has seen crypto tax reporting become a hot topic, especially in 2019, when the agency began its push to recoup unpaid crypto taxes. With this in mind, fresh guidance has been long overdue, to say the least. 

We’ve extracted some key points, which you can read here.

How does this affect your previous tax returns? 

According to industry experts: not in any particularly profound way in terms of what is taxable and what is not. The guidance merely reaffirms the IRS’ position on cryptocurrency taxation.

Most of the information is there to clarify the issues that needed clarifying, and taxpayers will no doubt know where to go in terms of tax reporting.

IRS solidifies its stance on hard forks and airdrops

One potentially sticky situation that could raise more questions than answers was addressed in the IRS’ revenue ruling. The IRS used two situations, positing that if a hard fork occurs, but one doesn’t receive fresh coins from the new chain, then they will not have received any income. However, if there is a hard fork followed by an airdrop, and one receives new coins, they will have received taxable income if they go on to sell, transfer or exchange them. 

People are disappointed with this scenario, especially as people can end up with “airdropped coins” they did not ask for.

As it stands, people have to understand which hard forks and airdrops saw them receive new coins – as this is now officially income that attracts tax.

IRS guidance empowers the tax collector

The crypto community has, for several years, called for more clarity from government regulators, with the IRS telling Congress in May that it would issue just this. It has, and a quick read reveals that much of the new materials relate to standard tax rules that also apply to crypto.

The guidance makes understanding tax reporting obligations easier for crypto holders, which is one of the most important topics for them right now. However, the guidance very transparently empowers the IRS to flex its tax body muscles as it looks to squeeze every penny it legally can from the crypto industry.

The tax collector has already stated, “We know you hold and transact with crypto, and we want you to pay taxes on these transactions.” That is what the guidance is aiming to achieve. It reinforces that view and will no doubt forcibly pull more taxpayers into the compliance mold, something many cryptocurrency holders have failed to do, or have still been hesitant to do, so far.

As per the IRS, and from records that are readily available, very few people have reported on their crypto gains over the years. If you consider the staggering number of crypto accounts on platforms like Coinbase, then it’s easy to see that it’s only going to get tough if people do not begin to comply with tax rules. This has also given rise to crypto tax software which helps investors generate their tax reports and stay compliant.

Clearer rules around crypto tax reporting

Cryptocurrency tax advisors point out that the clarity the guidance brings was sorely needed by the crypto industry. From this viewpoint, we can posit that the guidance will simplify the process and approach to tax reporting for the benefit of cryptocurrency holders. Taxpayers and tax professionals can now approach crypto taxes from a far more knowledgeable position. 

Up until it sent out letters specifically addressing the issue, the IRS appeared to be lagging in the area of enforcement. This meant people relied on the 2014 guidance that classified virtual currencies as property for federal tax purposes. However, crypto has grown and evolved rapidly, with new gray areas arising that the original guidance could not cover. This forced taxpayers to grapple with what was the right way to go about reporting their crypto taxes.

In one of its FAQs answers, the IRS reminds taxpayers that they must report all taxable transactions regardless of whether they receive Form W-2 or Form 1099

The IRS is saying, in a nutshell, “follow our advice and keep track of all your transactions.” According to the IRS, this is a requirement of the Internal Revenue Code.  But the truth is that the main goal is for users to correctly report on their income and gains and thus pay what they owe in taxes.

No need to complicate anything

One tax attorney has commented on the new guidance by stating that people who plan on remaining non-compliant should think extremely carefully about this decision. He explains that the rules are clear on how we report on other assets like stocks, and this is the same for crypto, and if one chooses to go another route, then that only succeeds in complicating matters for this individual.

Notably, the IRS reiterates its warning to potential tax cheats. If you are a taxpayer and you hold crypto but fail to report or pay taxes on your holdings, then the risk is very clear: hefty penalties, interests and criminal investigations. Remember, the IRS has information on more than 10,000 U.S. citizens that it sent letters to in July and August. So, be smart. 

And the teeny issue of crypto adoption?

If you buy a coffee using crypto, know that you need to report this when filing your returns. The IRS notes that crypto is held as a capital asset. This means that when you exchange your bitcoins for goods or other virtual currencies, you trigger a capital gain or loss.

There is no threshold on what should be taxable if you use crypto to buy goods or pay for services. You pay tax even on the tiniest of transactions. Could this affect the overall adoption of crypto? Let us know your thoughts in the comments below!

Robin Singh is the CEO of Koinly.io – a cryptocurrency tax solution that automates capital gains reporting for USA, Germany & Canada.

Altcoins

My Crypto Heroes Announces Issuance of MCH Governance Token

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Tokyo, Japan, 24th November, 2020, // ChainWire //

My Crypto Heroes is happy to announce the issuance of MCH Coin as an incentive to players in the My Crypto Heroes ecosystem, aiming to allow them to craft a “User-oriented world”. The MCH coin is available on Uniswap with a newly created pool with ETH. 

My Crypto Heroes is a blockchain-based game for PC and Mobile. It allows users to collect historic heroes and raise them for battle in a Crypto World. Officially released on November 30th, 2018, MCH has recorded the most transactions and daily active users than any other blockchain game in the world.

What is MCH Coin?

MCH Coin is being issued as an ERC-20 Standard Governance Token. The issuance began on November 9th, 2020, with 50 million tokens issued.

Of the funds issued, 40% are allocated to a pay for on-going development and as rewards for advisors and early investors. 10% are allocated to marketing and the growth of the ecosystem, and 50% are allocated to the community. The Distribution Ratio of the MCH Coin is subject to change via a governance decision.

The MCH coin will be used as a voting right as part of the ecosystem’s governance, with 1 coin being 1 vote. It will also be used for in-game utilities and payments. Additional information can be found here:

https://medium.com/mycryptoheroes/new-ecosystem-with-mchcoin-en-a6a82494894f

During December 2020 the first governance…

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Altcoins

Rewards Platform StormX Offers 50% Crypto Cashback Bonus for Thanksgiving

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Singapore, Singapore, 23rd November, 2020, // ChainWire //

Blockchain-based rewards platform StormX has released a seasonal promotion for its award-winning Crypto Cash Back App. The promotion will allow app users to earn a 50% bonus on top of their cashback between Thanksgiving Day and Cyber Monday (November 26-30).

StormX has also introduced a brand-new staking service, allowing users to earn an additional 50% per year when they stake STMX tokens. The native ERC20 token of the StormX ecosystem, STMX has a total supply of 10 billion and is available to trade at many of the world’s top exchanges, including Binance and Bittrex.

“With Bitcoin’s price approaching its all-time high, interest in cryptocurrencies has renewed, though some people believe it’s now too expensive to buy in,” said StormX CEO and Co-Founder Simon Yu. “What we have done is create an easy way for such individuals to accumulate bitcoin, ethereum and other cryptocurrencies via everyday shopping.

“We’re also excited to provide users with the ability to earn greater rewards simply by staking their tokens.”

Since the StormX mobile app launched its Shop feature with over 700 stores in February 2020, some 400,000 unique users have been added to the rewards platform. StormX has also witnessed over 50% month-on-month growth for sales. The app is available for download on the App and Google Play Stores, and can be downloaded as a browser add-on from the Chrome Web…

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Altcoins

BITTREX GLOBAL CONFIRMS FREE TRADING AND LISTING FOR TOP DEFI TOKEN

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Valduz, Liechtenstein, 17th November, 2020, // ChainWire //

International cryptocurrency exchange promotes free trading and no gas fees for leading DeFi tokens

17th November 2020 — Bittrex Global GmbH. announced today 8 new DeFi tokens will be listed this week including:

  • UMA (UMA)
  • Aave (AAVE)
  • Balancer (BAL)
  • REN (REN & renBTC)
  • Kyber Network (KNC)
  • Band Protocol (BAND)
  • YF Link – (YFL)

Bittrex Global’s users can trade all of their DeFi  tokens with no trading or gas fees until 2021. The decision to enable free trading on Bittrex Global for DeFi tokens  follows on from the 1,000% growth of the DeFi asset class over the course of 2020.

The decision to enable free transactions will see more investors enter the Blockchain Act’s digital asset regulatory system, supervised by the Financial Market Authority in Liechtenstein (FMA) under the Due Diligence Act which requires traders to comply with the KYC/AML/CFT standards.

“The last year has seen huge growth in DeFi as an asset class and a number of significant milestones completed,” said Bittrex Global’s CEO Tom Albright. “As the asset class matures and more institutional and professional investors look at the fundamentals, we are likely to see increased demand and higher trading volumes for DeFi in 2021.

We’re really excited about what we’re seeing in the space and want to see these DeFi projects grow and help them build stronger platforms through increased adoption. Offering free trading fees…

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