- August 21, 2024
- Posted by: legaleseblogger
- Category: Related News
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Important Update on Crypto Tax Obligations
You may not be aware, but if you completed the Know Your Customer (KYC) process with a cryptocurrency exchange a few years back, they might now be sharing your personal information with the Inland Revenue Department (IRD). This week alone, numerous clients have received notifications from the IRD regarding their cryptocurrency investments at Binance, Easy Crypto, Bitprime, and various other platforms. Additionally, deposits into bank accounts associated with these transactions are being flagged for further scrutiny.
What Does This Mean for You?
The recent communications from IRD signify a formal request for specific information. They are asking for copies of your crypto asset income calculations for each tax year alongside details of your end-of-year crypto asset holdings. Importantly, this is currently not classified as a full audit but merely an information request.
Key Points to Consider:
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If you have previously reported your crypto income: You are required to submit the calculations and any relevant documentation for IRD’s review. This means providing clear workings that chronicle how your income was derived from your crypto activities.
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If you have not declared your crypto income: It is highly advisable to initiate a voluntary disclosure with the IRD to report this income. Taking this step could significantly mitigate the risk of facing shortfall penalties for not exercising reasonable care or for adopting an unacceptable tax position.
Background: Understanding Crypto Taxation
You are likely aware that any sale, transfer, trade, or disposal of cryptocurrency triggers a taxable event. The taxable amount is determined by calculating the difference between the initial purchase value and the selling price, subtracting any fees incurred throughout the transaction (like gas fees or payment processing fees). The total taxable income from cryptocurrency results from aggregating all your taxable amounts (profits less losses) from each event.
This aspect is critical; even if you haven’t converted any of your cryptocurrencies into fiat currency, you could still be liable for taxes or potentially have tax losses from prior years. Hence, it is vital to retroactively assess your transactions from the point of your initial investment in order to calculate the correct tax obligations.
Recommended Next Steps
Consult an Accountant
One of the most effective courses of action is to reach out to an accountant who is well-versed in cryptocurrency taxation. In New Zealand, only a limited number of accountants possess the specialized knowledge needed to navigate this complex landscape—making professional guidance highly recommended.
DIY Approach
If you opt to handle this on your own, follow these essential steps:
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List All Wallets and Exchanges: Compile a detailed list of all cryptocurrency wallets and exchanges you’ve used, including all fiat deposits and withdrawals made.
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Use Crypto Tax Software: Import your transaction history into tools like Koinly or CryptoTaxCalculator, ensuring to include every transaction since the start of your engagement with cryptocurrency.
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Review Data for Completeness: Check for any missing transactions or wallets and ensure pricing data is accurate.
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Generate Tax Reports: Create tax reports for each year you have participated in trading and compile a comprehensive table summarizing all gains and losses. Ensure to export these reports for your personal records.
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Prepare and Submit Voluntary Disclosure: Draft a voluntary disclosure form detailing your crypto income and submit it to the IRD.
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Settle Outstanding Tax: Be prepared to pay any tax liabilities owed, noting that this may include accrued interest and penalties from the original due dates.
Consider Professional Assistance
If you have engaged in numerous transactions—especially involving NFTs, staking, decentralized finance (DeFi), liquidity pools, or if you’ve participated in events like the LUNA, FTX, Celsius, or Cryptopia incidents—it is advisable to enlist the help of an accountant. The complexity of your situation could increase significantly, and professional guidance can help ensure compliance and accuracy.
Utilize AI Legalese Decoder
In situations like these, you might also consider leveraging resources like the AI Legalese Decoder. This innovative tool can help you decipher intricate legal language in your correspondence and documents, making it easier to understand your obligations and rights. With such assistance, you can navigate the tax landscape more effectively, ensuring you’re fully informed before engaging with the IRD.
If you’re eager to delve deeper into the topic of cryptocurrency taxation, I recommend taking a look at the following resources:
- Cryptocurrency Tax 101: What is Taxable?
- Cryptocurrency Tax 102: Why is it Taxable?
- IRD Media Release: Focus on Crypto Assets
If you have any further questions or need assistance, feel free to reach out!
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