Bitcoin and taxes: Cryptocurrencies can generate taxable profits

Massive evaluation of bitcoin et al. by the end of 2020, it means that its holders have to deal with the issue of taxes. Theoretically, even those who bought bitcoin at practically the most inopportune time in December 2017 already made a taxable profit last year.

Cryptocurrencies are not a completely new phenomenon, bitcoin has been operating since 2009. It first became more widely known mainly during 2017, when its price soared to its current highs of around twenty thousand dollars for a virtual coin.

However, many investors still have uncertainties regarding the taxation of profits from cryptocurrency trading or mining – mainly due to the lack of special legislation. However, this does not mean that they do not have to meet their tax obligations.

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Bitcoin and taxes in the Czech Republic

“It is necessary to apply general rules and available interpretations to the taxation of cryptocurrencies,” points out the manager from the tax department of KPMG, Iva Krákorová. Therefore, the tax exemption cannot be applied, as in the case of income from the sale of tangible movable property or the sale of securities.

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“There is currently an interpretation by the Directorate-General for Finance. The financial administration is based on the CNB’s already existing analysis of bitcoins, according to which it is not funds, neither electronic money nor an investment instrument. In its interpretation, the Financial Administration stipulates that cryptocurrencies must be considered intangible and tax on income from their sale (not holding) as income from the sale of goods under the Income Tax Act, “said Lukáš Heřtus from the General Finance Directorate.

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According to him, the same procedure is followed when taxing income arising from the exchange of cryptocurrencies for another cryptocurrency, goods or services. Speculators who trade bitcoins and other virtual currencies and exchange them for standard money should pay 15 percent of the profit, ie from the difference between acquisition and sales value.

You can’t even rely on a time test. Therefore, you must tax the profits from the sale of bitcoin and other virtual currencies even if you hold them for more than three years.

Cryptocurrencies and calculation of income tax

Ke The purchase and sale price of bitcoin or other cryptocurrencies can be determined in different ways. One method is to use the so-called weighted average of the purchase price of cryptocurrencies sold.

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Another is the so-called FIFO (First In, First Out), a procedure where the taxpayer starts selling the bitcoins he bought first in the past. There may be significant differences due to sharp fluctuations in cryptocurrency rates.

Hana Trnková Kocourková dealt with the legal and tax aspects of cryptocurrencies in more detail in her presentation in Parallel Polis. For more information and specific examples, see the video:

Bitcoin in business

“In the case of business, income could be viewed as income under paragraph seven, and general tax rules would have to be applied and the costs of earning, securing and maintaining income could be claimed,” said Robert Bezecny, tax adviser at Deloitte.

Taxation of extracted bitcoins or altcoins

In this case, the procedure is as in obtaining the thing by one’s own activities. The exchange of the extracted cryptovalute for another digital currency or standard money is taken to achieve income. All expenses to secure and maintain income can then be deducted from the tax base.

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