Crypto Tax Health Check

We believe your Crypto Tax should perform a regular health check like your body. You may think that we are kidding, but we are very serious in this.

We worked with a number of Cryptopians and their tax "health" was poor and immediate "cure" was necessary. We find that the root cause of poor health as follows.

1. Unaware of tax obligations

Some Cryptopians are not aware that their investment and income from Crypto are subject to tax. Their misunderstanding to the basic tax rules includes:

• Crypto-to-Crypto trading profits are not taxable. Only Crypto-to-Fiat are taxable.
• Only profits and income in fiat are taxable. For example, mining income in Bitcoins is not taxable.
• Income from offshore tax haven is not taxable. Many Crypto companies register in tax haven and pay the salaries in crypto to employees, who do not think that the employment income is liable to tax.

2. Aware of tax obligations and considered themselves safe

Tax rules for crypto started to develop in some countries, now more Cryptopians are aware their tax obligations but considered themselves low risks and safe. The reasons include:

• Crypto holdings are stored in cold wallet
• Exchanges have inadequate or even false KYC (Know your client) information
• Complicated and opaque methods are arranged to transact in cryptos and fiats

3. Incomplete tax compliance due to lack of information and misunderstanding of tax rules

Now there are growing numbers of Cryptopians starting to file tax returns and report their crypto profits and income to tax authorities to eliminate the non-compliance tax risks. However, the tax compliance is far from perfect due to reasons below:

• Incomplete or loss of transactions in exchanges or defi
• Coins in cold wallets are not reported
• Certain type of income and profits are not properly reported, like reward coins from staking

4. Aggressive or suboptimal tax planning

A growing but still limited number of Cryptopians are working on tax planning schemes to reduce their tax liabilities. However, we found that the tax planning is either aggressive (too risky) or suboptimal (more tax savings may be realized).

Based on the root cause above, a health check is an important first step to understand your tax obligations, measure tax liabilities arising from relevant profits and income, assess your level of tax compliance, and explore the potential options on tax planning to reduce the liabilities and mitigate risks.

What you need now is an international tax professional to perform a comprehensive health check for you. KC Tax has helped many Crypotians and they love our service. Talk to us if you need a check.