Digital assets are Pandora’s box in terms of opportunities. This does not mean that they come without any consequences. The investors should be ready for a visit from the taxman.
Various Mishaps Have Occurred in The Past
It is a common understanding that you have to pay taxes on the money you earn but being mentally prepared for it gives a better vision of how to manage their finances to the investors. Investopedia published a report more than a year ago, which stated that many investors of the crypto market get panicked as the tax year ends, and they seem to find themselves in a tough spot with the taxman.
There have been a lot of posts on Reddit regarding this very issue. Many investors who did not manage their finances well and did not pay their tax liabilities on time after their capital gains from the crypto market, they might lose a lot of money because of that.
Government Is Taking Positive Steps
Investors and institutions are gathering to invest in Bitcoin as the price of Bitcoin is gaining strength, and this is where the regulators and legislators come in, monitoring everything very closely. The Economic Cooperation and Development Organization recently introduced its plan of a widespread and uniform tax structure for all its member states. Announcements like these show that the government institutions are working hand in hand in order to create a fair and better economic framework, and it is a positive sign, but they also need to create mass awareness among the investors because one wrong move can set you up in jail for five years and get you fined up to $250k.
Tokenized assets and cryptocurrencies come under the same umbrella according to the tax code of the US. The IRS, however, has a different view and says that Bitcoin should fall under the category of property assets because people use it more as an investment rather than a functioning transactional currency like the US Dollar and other fiat currencies.
The popularity of hedge funds using cryptocurrency has risen over the years and almost doubled from a value of $1 billion in 2018 to $2 billion in 2019, according to PricewaterhouseCoopers. Investing in some funds can be tricky as their contracts are over 500 pages sometimes, and it is better to take the help of a tax advisor at an early stage, rather than regretting it by getting on the wrong side of IRS in the future.