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The major tax myths about cryptocurrency debunked

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Crypto and taxes may not be a heavenly match, but taxes seem inevitable, and the United States’ Internal Revenue Service (IRS) has made it clear that it is up to people who don’t come forward. With subpoenas from the IRS on Coinbase, Kraken, Circle, and Poloniex, as well as other enforcement efforts, the IRS is on the hunt. The IRS sent 10,000 letters of various versions asking for compliance, but all of them encouraged taxpayers to comply.

The IRS hunt for crypto has often been compared to the IRS hunt for overseas accounts more than a decade ago. Unfortunately, it’s not clear if there will ever be a crypto amnesty program that mimics the offshore clearance programs the IRS has formulated for offshore accounts.

Related: More IRS crypto coverage, more risk

The IRS made its first major announcement about crypto in the 2014-21 notice, classifying it as property. This has major tax consequences, accentuated by wild price fluctuations. Selling crypto can generate profits or losses and be taxable. But buying something with crypto can also trigger taxes. Paying employees or contractors is also possible. Even paying taxes in crypto can raise more taxes.

We are already seeing crypto audits by the IRS and some states (especially the California Franchise Tax Board) and more are sure to follow. At least now there are alternatives to tracking and filing tax returns that can make the process easier than it was in the early days. Everyone tries to minimize taxable crypto profits and defer taxes where legally possible.

Still, it is easy to get confused about tax treatment and to take tax positions that are difficult to defend when caught. With that in mind, I’ve heard a few things here that I call crypto tax myths.

Myth 1

You cannot owe taxes on cryptocurrency transactions unless you are given an IRS Form 1099. If you did not receive a Form 1099, you can check the box on your tax return that says you have not made any cryptocurrency transactions.

Strictly speaking: Taxes can still be owed even if the payer or broker does not submit a Form 1099. A Form 1099 will not collect tax if no previous tax was due, and Form 1099 does not report much taxable income. A Form 1099 could be wrong in this case, explain it on your tax return. But if you’re under scrutiny and your best defense is not to report your transactions because you didn’t receive a Form 1099, that’s weak.

Myth 2

If you hold your crypto in a private wallet instead of an exchange, you don’t have to report the crypto in your tax return.

Strictly speaking: Private wallet or exchange, the tax rules are the same. The impulse to hide property by moving assets into anonymous holding structures is not new. When Swiss banks began disclosing their US account holders to the IRS and the US Department of Justice, many US taxpayers tried pretty much anything, but in the end almost all of them paid, mostly with heavy fines. The cryptocurrency question on the IRS Form 1040 is not limited to cryptocurrencies held through exchanges. If you say “no” even though you have crypto in a private wallet, you may be providing false information on a tax return signed under penalty of perjury. You might bet you never get caught, but thousands of US taxpayers with Swiss bank accounts can testify to how bad this bet can turn out.

Myth 3

If you hold your crypto through a trust, LLC, or other entity, you do not owe any taxes on the crypto transactions and you do not need to report. Also (the myth continues) LLC income is tax free.

Strictly speaking: Owning crypto through a legal entity can keep income off your tax return. However, unless the company is qualified (and registered) as a tax-exempt company, the company itself is likely to have tax reporting requirements and may owe taxes. For tax purposes, LLCs are taxed as corporations or partnerships, depending on the circumstances and tax choice. Individual member GmbHs are not counted so the LLC income ends up on the sole owner’s return. If your company is an overseas company, there are complex US tax rules that make you directly liable for certain income generated within the overseas company.

Myth 4

If I structure the sale of my cryptocurrency as a loan (or any other non-sale transaction), I don’t need to report the proceeds.

Strictly speaking: Consider whether to borrow or sell the crypto. The IRS and the courts have solid doctrines for ignoring bogus transactions. Are you getting back the same crypto that you borrow? Do you charge interest on the loan and pay tax on the interest when you receive it? Some loans may not hold up. And when you sell crypto and get a promissory note, it can make your taxes even more difficult with installment sale calculations.

Myth 5

A crypto exchange is a type of trust in that you cannot unilaterally change the policies of the exchange. So you do not have the crypto in your account for tax reasons and you do not have to report any transactions via an exchange.

Strictly speaking: The IRS didn’t say anything about it. The IRS guidelines suggest that the IRS regards taxpayers as the owners of the cryptocurrency held through their stock exchange accounts. It seems highly unlikely that the IRS would view crypto held through an exchange account as property of the exchange itself (as a trustee) rather than the property of the account holder. Taxpayers often own their assets through accounts held by institutions such as bank accounts, investment accounts, 401 (k) s, IRAs, etc.

In most cases, tax law treats the taxpayer as the owner of the funds and assets held through these accounts. Some special accounts like 401 (k) s and IRAs have special tax rules. And an account that is treated as an escrow account isn’t necessarily a good tax return. Trust beneficiaries, especially foreign trusts, have burdensome reporting obligations. So before considering crypto exchanges as trusts, be careful what you want. The designation of a trust does not mean that the income generated within the trust is exempt from income tax.

Myth 6

The amendment by Congress to Section 1031 of the Tax Code, which restricts exchanges of like types to real estate, makes crypto-to-crypto exchanges non-taxable.

Strictly speaking: Section 1001 of the Tax Code provides that a taxable profit results from the “sale or other sale of assets”. Selling real estate of any kind for cash or other real estate can result in a taxable profit. The IRS says crypto is owned, so trading crypto for other crypto is selling crypto for the value of the new crypto.

Before the amendment to Section 1031 came into effect in 2018, a crypto-for-crypto swap as a similar exchange under Section 1031 could have been OK. But the IRS is pushing back this position on tax audits and has issued guidelines on tax deny-free treatment for certain cryptocurrency swaps. That’s not a precedent and doesn’t cover the waterfront, but it does tell you what the IRS thinks. In any case, now that Section 1031 has restricted the treatment of like exchanges to real estate, crypto-to-crypto swaps are taxable unless they qualify for another exemption.

Takeaways

Every taxpayer has the right to plan his affairs and transactions in such a way that he seeks to minimize taxes. But they should be wary of quick fixes and theories that sound too good to be true. The IRS seems to believe that many crypto taxpayers are not complying with tax laws and it pays to be careful in the future and clean up the past. Be careful out there.

This article is for general informational purposes and is not intended and should not be construed as legal advice.

The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.

Robert W. Wood is a tax attorney serving clients worldwide from Wood LLP’s San Francisco office, where he is a managing partner. He is the author of numerous tax books and frequently writes about taxes for Forbes, Tax Notes, and other publications.

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Cryptocurrency

Cryptocurrency providers at high risk of financial crime – FMA

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The Financial Market Authority has found that cryptocurrency service providers are at high risk of being targeted by money launderers and terrorist financiers.

Photo: 123RF

The industry received the rating in the FMA’s most recent sector risk assessment (SRA), in which various types of financial service providers were described with regard to illegal financial behavior.

The risk profile for the majority of the nine sectors supervised by the FMA has not changed since 2017.

However, Virtual Asset Service Providers (VASPs) that enable cryptocurrency, token or crypto-asset transactions were added and received the highest risk rating.

“Since our last assessment, the risks of virtual assets, especially cryptocurrencies, have come to the fore,” said FMA supervisory director James Greig.

“Virtual assets allow for a higher level of anonymity and have a global reach, making cross-border payments easy.”

A sector risk rating was determined on the basis of its complexity, liquidity of the transactions and the anonymity granted to clients.

This included the size of the company, the type of products offered, their value, how products can be bought and sold, customer types and country risks.

Virtual Asset Service Providers, or VASPs, that enable cryptocurrency transactions were added to the list and received the highest risk rating.

Virtual Asset Service Providers, or VASPs, that enable cryptocurrency transactions were added to the list and received the highest risk rating.
Photo: Delivered

The FMA expects all reporting offices to familiarize themselves with the risks and weak points in connection with VASPs and virtual assets and, if necessary, to include them in the risk assessment.

The main regulatory agency of cryptocurrency service providers is the Department of Internal Affairs, with the FMA overseeing a very small number of VASPs.

The 2021 sector risk assessment also confirmed the high risks associated with derivative issuers.

This follows on from the recent measures taken by the FMA against a handful of companies that failed to meet their obligations to combat money laundering.

“Derivatives issuers are inherently high risk because their products are highly liquid, accounts are easy to open, and they can have many overseas clients in higher risk countries,” Greig said.

Greig also said the rapid growth of retail investment platforms meant they could be targeted by money launderers as their compliance with their anti-money laundering commitments may not have kept pace.

This became clear at the beginning of the year when the FMA informed the retail trading platform Sharesies of failing to verify the identity of almost 8,000 customers and of insufficient customer due diligence.

“These platforms are highly liquid, so large volumes of trade can take place without suspicion, and customers can quickly create online accounts without personal verification, which favors anonymity,” said Greig.

“While these platforms often have sophisticated systems for monitoring accounts, they need to collect sufficient information about the nature and purpose of the investment.”

The FMA expected all entities subject to the FMA reporting obligation to review the new SRA and update their own risk assessments accordingly and to take into account all new risks and findings, said Greig.

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Cryptocurrency ‘mainstream’ in Australia | Bega District News

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News, latest news

Cryptocurrency has become mainstream in Australia, and according to a survey by a leading exchange, more and more women are punted. More than a quarter (28.8 percent) say they own or have owned cryptocurrencies, according to the Independent Reserve Cryptocurrency Index (IRCI) 2021 published on Tuesday. The proportion of women who deal with cryptocurrencies has doubled this year from 10.3 percent to 20 percent. Despite the amazing volatility, most of those surveyed (89 percent) made or even broke money this year. Adrian Przelozny, CEO of the Independent Reserve, said the sector urgently needs regulation to provide more security for both investors and cryptocurrency companies. “Our IRCI results this year support this as 28.6 percent of Australians who currently do not own cryptocurrency tell us that if there was better consumer protection, they would invest,” he said. Now in its third year, the annual survey of over 2,000 people tracks awareness, acceptance, trust and trust in the cryptocurrency. 26.6 percent said they would buy crypto if regulation of the industry improved. “While Australian regulators and government agencies may have taken a while to delve into cryptocurrencies and other digital assets, the Australians themselves have moved faster and we really see crypto as an asset class from the edge of the mainstream over the past year,” said Przelozny. According to the survey, Bitcoin remains the most famous and popular cryptocurrency ahead of Ethereum. The age group of 24 to 34 year olds trusted crypto the most. 27.6 percent said they shopped to get rich while people over 65 years of age said they did shopping to get rich Stay skeptical. The latest data from the Australian Tax Service shows that more than 800,000 people are making transactions in cryptocurrency. The Independent Reserve cryptocurrency exchange was developed and established in Australia in 2013 and is now licensed in Singapore. Australian Associated Press

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December 7, 2021 – 10:16 a.m.

Cryptocurrency has become mainstream in Australia, and according to a survey by a leading exchange, more and more women are punted.

More than a quarter (28.8 percent) say they own or have owned cryptocurrencies, according to the Independent Reserve Cryptocurrency Index (IRCI) 2021 published on Tuesday.

The proportion of women who deal with cryptocurrencies has doubled this year from 10.3 percent to 20 percent.

Despite the amazing volatility, most of those surveyed (89 percent) made or even broke money this year.

Adrian Przelozny, CEO of the Independent Reserve, said the sector urgently needs regulation to provide more security for both investors and cryptocurrency companies.

“Our IRCI results this year support this as 28.6 percent of Australians who currently do not own cryptocurrency tell us that if there was better consumer protection, they would invest,” he said.

Now in its third year, the annual survey of over 2,000 people tracks awareness, acceptance, trust and trust in the cryptocurrency.

26.6 percent said they would buy crypto if regulation of the industry improved.

“While Australian regulators and government agencies may have taken a while to delve into cryptocurrencies and other digital assets, the Australians themselves have moved faster and we really see crypto as an asset class from the edge of the mainstream over the past year,” said Przelozny.

According to the survey, Bitcoin remains the best known and most popular cryptocurrency ahead of Ethereum.

The age group of 24 to 34 year olds trusted crypto the most. 27.6 percent said they shopped to get rich, while people over 65 remain skeptical.

The latest data from the Australian Tax Service shows that more than 800,000 people are making transactions in cryptocurrency.

The Independent Reserve cryptocurrency exchange was developed and established in Australia in 2013 and is now licensed in Singapore.

Australian Associated Press

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bitcoin volatility, $196M Bitmart hack, new OpenSea CFO

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The entire cryptocurrency market suffered a slump over the weekend.

Bitcoin, the largest cryptocurrency by market value, plunged to a low of nearly $ 43,000 on Saturday night. The price has since bounced back and is currently trading at around $ 49,149, according to Coin Metrics.

Ether, the second largest cryptocurrency, also fell to around $ 3,500 on Saturday. Ether is currently trading at around $ 4,179.

Aside from the volatility this weekend, here are seven things that have happened in crypto over the past week.

1. Metaverse Land Sales Exceed $ 100 Million In One Week

Virtual real estate has become more and more a coveted commodity.

Sales of NFTs, or non-fungible tokens representing Metaverse land, exceeded $ 100 million in the last week alone, cryptanalysis firm DappRadar reported on Tuesday.

The Sandbox, an Ethereum-based metaverse and game that allows users to purchase land and in-game assets as NFTs, had a trading volume of more than $ 86 million. Decentraland, a virtual reality platform operated by Ethereum, had traded more than $ 15 million for land NFTs.

“With record sales and constantly rising NFT prices, virtual worlds are the new top product in the crypto space,” wrote DappRadar in a blog post.

2. Jack Dorsey’s Square changes company name to block

On Wednesday, Jack Dorsey’s payment company Square announced that it was renaming itself to Block effective December 10th.

Block “has many related meanings for the company – building blocks, neighborhood blocks and their local businesses, communities gathering at block parties full of music, a blockchain, a chunk of code and obstacles to overcome,” Block said in a statement.

Square Crypto, a separate part of the company dedicated to advancing Bitcoin, will change its name to Spiral.

“We built the Square brand for our seller business where it belongs,” said Dorsey, co-founder and CEO, in a statement. “Block is a new name, but our purpose of economic empowerment remains the same. No matter how we grow or change, we will continue to develop tools to improve access to the economy. “

The name change came after Dorsey announced his resignation as CEO of Twitter. Chief Technology Officer Parag Agrawal will take on the role, the company announced on Monday.

3. Facebook withdraws from the crypto advertising ban

4. BadgerDAO DeFi project hacked, approximately $ 120 million loss

On Wednesday evening, BadgerDAO, a decentralized autonomous organization focused on bridging Bitcoin with decentralized financial applications, was reportedly hacked and lost about $ 120 million, according to blockchain security and data analytics firm Peckshield.

An investigation to find out what happened is still ongoing.

Meanwhile, BadgerDAO has frozen all smart contracts, which are digital agreements written in code and stored on the blockchain. Again, according to the BadgerDAO website, users will not be able to request deposits, rewards, or withdraw funds.

This is happening amid many new DeFi-related hacks, which is why financial experts caution against doing thorough research before investing in projects. They recommend investing only what you can afford to lose.

5. Hackers take $ 196 million from Bitmart crypto exchange

The Bitmart cryptocurrency exchange had been hacked, the company confirmed in a statement on Saturday evening.

Bitmart called it “a large-scale security breach” and estimated that hackers withdrew about $ 150 million, but Peckshield estimates the loss was closer to $ 200 million.

In the statement, Bitmart said all withdrawals have been temporarily suspended and a security clearance is ongoing.

As of Sunday, CNBC reached out to several Bitmart employees asking for more clarity about the hack and whether the targets would be reimbursed. CNBC hasn’t heard anything yet.

6. Charlie Munger Says He Wishes Cryptocurrencies “Never Made Up”

Billionaire investor Charlie Munger is still not a fan of cryptocurrency.

“I wish they had never been invented,” said Munger, according to The Australian Financial Review, at the Son conference in Sydney on Friday. “I admire the Chinese, I think they made the right decision to just ban them.”

This isn’t a new attitude for the 97-year-old vice chairman of Berkshire Hathaway. In May, during a question-and-answer session at Berkshire’s annual shareholders meeting, Munger said his aversion to Bitcoin had increased amid the Covid-19 pandemic.

7. OpenSea appoints former Lyft CFO. a

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