Nowadays, Bitcoin and other digital currencies are commonly used for digital transactions in many countries. There are plenty of ways through which one can own crypto assets. It can be income, trading, investment, exchange of any service or product, mining, etc.
Many freelancers work for various international companies, paying them a salary in virtual currencies. They are trading on different platforms to earn profits. Even many beginners are into investing and trading virtual currencies. You also start making money by exchanging your assets from platforms like the-crypto-superstar.com/de.
If you have no idea whether you are liable for paying tax to the government or not, then you must know about it. Many people think that it is easy to get personal income in cryptocurrencies without sharing any details with the country’s tax department.
But the truth is that you have to pay tax on everything you own. It can be digital assets, and hence, you need to know everything about the process. In the following write-up, we will discuss everything about cryptocurrencies and their taxes in detail that a freelancer must know.
Table of Contents
How Taxation on Cryptocurrency Works?
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In the US, people consider cryptocurrency as property. You are liable to taxes, no matter how you own virtual currency. You need to share all the details of your income or capital gains with your country’s government. If you are a freelancer, you may get a salary in digital currencies, and you may think that you do not have to pay any tax on them.
But you need to share how much money you receive, and your annual value will be noted to calculate the tax. Now, you might be thinking about who is payable to those taxes. Various taxable activities regarding digital currencies, i.e., trading, getting payments, purchasing and selling goods, etc. But if you are transacting funds within your accounts, there is no need to pay any tax on it.
Check the Legality of Cryptocurrency
It is necessary to check whether the use of cryptocurrency is legal in your country or not. If you are involved in any illegal activity, you need to pay the penalty or go to jail. But if it is legal in your country, you can get involved in any activity to own the digital currency.
But you have to pay taxes to your country’s government. You need to show all the details of your earnings. The financial department will calculate all the taxes you are liable to pay. Like fiat money, you need to pay the tax at any cost. If you do not do so, you have to pay the fine as per the rules.
How Can A Freelancer Own Bitcoin or Other Virtual Currency?
Nowadays, many people are getting employed by doing freelance projects. They are working from remote locations or work from home. There are many ways of getting payment, but the most common one is digital.
Many people ask for cryptocurrency as their income source because it is quite profitable to own these assets. With the time and volatile nature of the crypto market, cryptocurrency’s price will increase, and one can earn massive profits. But one can own them in many ways:
1. Mining
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Like other items, one can mine cryptocurrencies also. The process requires a lot of time, resources, electricity, etc. It is hard for every freelancer to do this job, but many people are still interested.
If you are mining Bitcoin, then it means that you are generating capital assets. All such assets are fall under the Income Tax Act. The tax authority will ask you to pay the tax when you receive cryptocurrency through the mining process.
2. Own Bitcoin as an Investment
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Many freelancers also invest their money in crypto assets to earn profits in future. This money can be exchanged for your fiat currency to get digital money. It is necessary to show all the exchange transactions. The tax will depend on the Bitcoin you hold for a specific period. The tax on the short and long capital gains may vary.
3. Own Bitcoin as Stock
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Many freelancers may own BTC as stock, and they get it in exchange for fiat money. With time, people are getting a hike in income from their businesses. There is a different slab rate for every stock owner. Therefore, the tax amount will change as per the stock’s price you are holding. You must keep calculating the tax whenever you buy or sell stock in BTC.
4. Get Bitcoin in Return of Goods Sale or Services
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Whenever you purchase goods, and you get Bitcoin in return or exchange, you also have to pay tax. You own digital currency whenever you sell any item to anyone and get money in the form of BTC or other cryptocurrencies. Your income is a part of your profession or business, and hence, you have to show all the details to the financial authority.
Why Should You Calculate Your Annual Gains or Losses?
Calculating your annual losses and gains is necessary to know how much tax you have to pay to the financial authority. You must prepare a report of gains and losses by tracking your crypto activities.
Whether you purchase or sell cryptocurrencies, you need to keep recording everything. Ensure that you share all the details with the tax department to prevent unnecessary penalties.
Final Thoughts
All the things mentioned above are crucial that every freelancer must know. Many people do not know that they can pay taxes if they own cryptocurrencies. But like fiat money, you need to pay tax on your digital transactions. It is better to calculate all your gains and losses to calculate the exact tax amount you need to pay annually.
Make sure that you take care of the tax to prevent unnecessary penalties. As a freelancer, you may consider virtual currency a personal income or investment. But you need to keep things transparent with your country’s tax authorities.
