Currency comes with three faces mainly.

• A unit of account
• Store of wealth
• Means of exchange

Cryptocurrencies around seem to serve the second part only. So, talking about the taxation of these currencies means taxing changes in realized wealth, that is your income tax.

As with more growing acceptability and increasing comfortableness with risks among the regulators, the crypto world is coming out stronger. But IRS has its eye on the crypto investment.

In 2014, IRS issued a legal statement stating that virtual currency will be treated as the capital asset if convertible into cash. Same rules of capital assets loss and gain apply to these digital currencies. Despite these implications, there are very fewer guidelines provided by the authority.

The gaining acceptance of these blockchain-based currencies has attracted many with tales of massive fortunes. Being decentralized and unregulated, these currencies show a great deal of volatility. The currency needs to hold its volatility in order to replace the fiat currency in long terms.

Basics

Running on the system of Blockchains which are decentralized and constantly updated. Despite the extremely complex mechanism, these blockchains are easily verified and are highly encrypted. Due to these features, blockchain has backed many cryptocurrencies including Bitcoin.

A few popular cryptocurrencies include,

• Bitcoin
• Ethereum
• Ripple
• Litecoin
• Monero
• Dogecoin
• Dash
• Tether

All the crypto coins other than Bitcoin are known as altcoins. Perks of being the pioneer, right?

Due to lesser global uniformity and lack of consistency coming with the nature of digital currency, there is a lot of challenges and understanding surrounding the tax regulations of this system. Some basic tax trends to be kept in mind are,

Different rules, different countries

The same basis as traditional businesses rules applies here. As there are different rules for different countries around the world, similarly different tax rules apply to digital currencies taxation around the globe.

If you wish to purchase services or goods using your digital currency, the cryptocurrency used will be written an asset or property. the gain over the currency will be accounted as income subject to tax- for the purchaser. The total value of the transaction is recognized as transaction tax. The seller is bound to collect and remit this value.

Countries like the U.S impose their own set of rules and regulations over tax rates and other categories of goods and services.

From small entrepreneur business planning to global, it can be a great amount of confusion and mayhem for them. In a number of countries, these tax systems are in multiple layers, including taxation for think city, federal and state altogether.

The task is not only to determine the tax payables, the real task will be to figure out the jurisdictions it falls into.

Taxman digitalized

Being a digital currency, the most undertaking is done by the digital goods here. The regulations are being monitored and are coming in shape by the EU and the Organization for Economic Co-operation and Development (OECD).

Taxing majorly base on where the consumer rides. The collection will happen via holding platforms. The tax will be collected and remitted on merchant’s behalf or the tax holder on payments sent to offshore clients.

The anonymity of this crypto nature can be of a great challenge here. There will be minimal information available regarding the receiver or the sender of the transaction.

The government is also working on simplifying this issue. They have introduced guidelines under the title, know-your-client (KYC). Records will be requested through these plans and unwilling or any party unable to disclose their credentials may dwindle.

A global default rule regarding crypto-based businesses may be introduced, accumulating same jurisdictions and rules applied to all.

Tax implied

The tax will be implied specifically in these areas.

• Trading- it produces capital gain or loses, it has to offset gains and reduce tax.
• Exchange- exchanging one crypto coin with another creates a taxable event. The token is sold so generates loss or profit.
• Payment received in Crypto- receivables in exchange for goods or services will be treated as ordinary income.
• Spending cryptocurrency may gain price during the holding period, subject to capital gain.
• Conversion to fiat currency
• Air Drops- income becomes the basis of the coin when sold or exchanged there will be a capital gain.
• Mining coins

•    Initial coin offerings