Even though many governments like that of United States isn’t ready to recognize virtual currency as legal tender or currency, they realize there are profits to be made around the crypto market. Taxing cryptocurrencies was the motivation behind the tax reform bill that was passed by the US Congress in December of 2017.
The bill closed the loophole that freed like-kind exchanges, for example, swapping one crypto for another from being taxed. Under the new laws, all crypto transactions can now be taxed. With this in mind let us have a look at three reasons why taxing cryptocurrencies is just ridiculous.
Compiling a tax return is just difficult
Many crypto traders have used a number of exchanges and wallets and in the process have built up a decent volume of trades. According to the tax laws, this means tracking and assessing every transaction. Then there is the part of determining basis and gain. Basics have to do with the price an investor paid for the cryptocurrency and the gain is the accumulated difference. With price volatility for cryptos, this will create major accounting issues for any trader that has used cryptos for everyday transactions.
This issue is even amplified when you consider businesses that accept crypto payments.
- Taxing cryptos is stifling innovation
If governments go ahead and implement taxing cryptocurrencies, this form of tracking and reporting all transactions will deter potential investors from making the next investment in an upcoming coin or ICO. This will limit the money raised by blockchain innovators and cryptocurrencies. In turn, this will stifle an industry that is set to be the future backbone of the global economy.
As much as taxation is important, applying the regulatory framework that is used on traditional financial infrastructure won’t work for the innovative crypto and blockchain industry.
- There is no such thing as direct trades
There is always a time lag between buying a coin like bitcoin or Ethereum with physical money and then making a trade with your altcoin of choice. If the price of the coin goes up, for example, in the meantime – this change in value is taxable.
Governments will really have to come up with a viable solution if they are to tax cryptocurrencies. Applying an already outdated taxing system on a class of assets is like trying to force a square peg to fit a round hole.
In the comment section below let us know your take on governments taxing cryptocurrencies.