While many refer to crypto as the “Wild West”, some believe that this may only be going on for a while.
Thomas Shea, crypto tax leader at EY Financial Services, told Cointelegraph that crypto taxation is an area under development and new regulations could be introduced soon. “There is new legislation requiring reporting for at least some crypto transactions and when those rules come into effect there will be significant changes,” Shea said.
The EY executive notes that with the increased popularity of crypto, lawmakers are constantly exploring how to monetize and regulate digital assets.
“We see certain jurisdictions developing regimes, rates and reporting that are unique to digital assets. In the US, we see that digital assets are subject to regulation and reporting is generally limited to securities (and not ownership).”
While not many people can appreciate the tax on their crypto assets, understanding the changing tax effects of crypto is critical, according to Shea. The tax expert notes that market participants should be aware of the “size of their transactions that may trigger a taxable event and the associated reporting requirements.”
According to Shea, buying or selling crypto affects whether it is taxable or not. Buying crypto with fiat and any unrealized gains in value are not taxable events. However, the tax advisor notes that selling your crypto is a taxable event. He explains that “the gain or loss is generally capital in nature” and that it could be taxed.
Even if a holder trades their cryptocurrency for other assets such as Bitcoin (BTC) or Ethereum (ETH), the director of EY notes that this presents users with a “taxable event and that they must report any gain or loss on the disposed crypto”.
The same goes for nonfungible tokens (NFTs). “If you bought an NFT with fiat, not a taxable event,” Shea says. However, buying NFTs with crypto is treated the same as a crypto-for-crypto exchange. “The gross proceeds minus your tax base in the asset, usually including any associated fees/costs,” says the crypto tax expert.
The EY board also urges people to seek the advice of good advisors as soon as they are aware of their tax obligations.
“In an industry where technology is the architectural framework, having a consultant who has a corresponding technology solution and understands your goals can help you make the best possible decisions to minimize your tax burden.”
Related: How are cryptocurrency taxes reported?
Meanwhile, in Thailand, crypto traders are reportedly exempt from the 7% sales tax on authorized exchanges. Traders in the country will also be able to offset losses against profits annually.
In February, the Indian government proposed a 30% income tax on crypto income. However, many opposed the proposal, as a 30% crypto tax is nearly double compared to corporate tax rates hovering around 16%.