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Cryptocurrencies are becoming increasingly mainstream in Ireland, as more and more cash-rich investors look at cryptocurrencies like Bitcoin and Ethereum as a viable investment option. In fact, Ireland is one of the few countries that has its own cryptocurrency — the Irishcoin — that people can actually use to purchase goods and services.
Yet, there seems to be alarmingly little information about the regulations around cryptocurrencies. Many people wrongly believe that because a crypto transaction is anonymous, it doesn’t result in any tax liability. On the contrary, one of the fundamental tenets of crypto is transparency — which means it’s actually fairly easy for Revenue to trace your transactions. In fact, in the USA the IRS recently got information about crypto investors from exchanges like Coinbase and sent letters to suspected tax defaulters. The UK’s HMRC also recently requested crypto exchanges for investor details and Ireland’s Revenue may not be far behind either.
If you’re on the verge of filing your tax returns and are still on the fence about your crypto taxation, here are 5 things you need to know today.
# 1: Crypto investment is treated just like an investment in stocks or shares
In Ireland, cryptocurrency investments are subject to the same regulations as investments in stocks and shares. This means that profits from crypto transactions are subject to capital gains tax at 33% at the time of disposal of the crypto — whether that’s a sale, gift, or exchange. However, the first €1,270 of your cumulative annual gains from crypto (after deducting expenses and losses from crypto investments) are exempt from tax. Only the amount over and above €1,270 is subject to 33% tax. However, even if you’re sure that no tax will be due, you still need to file a tax return.
#2 How and when you need to pay the taxes
This can get a little complicated. You need to pay taxes in the same year that they become due but you need to declare them the following year. Also, if the crypto disposal happens between 1st January to 30th November, you need to pay Capital Gains Tax by 15th December of the same year. If the disposal happens between 1st to 31st December, you need to pay tax by 31st January the following year.
How you need to pay taxes depends on whether you are self-employed or a PAYE (Pay As You Earn) individual. PAYE individuals need to file a CG1 return while self-employed people will fill out Form 11.
#3 You will need accurate records
All crypto disposals are subject to capital gains tax. This means you incur a tax liability whether you sell your cryptocurrency, exchange it for other cryptos, or even gift it to someone. Since most serious crypto investors undertake a bunch of transactions throughout the year, keeping track of these transactions can become a major task. It’s best to maintain detailed records of your crypto transactions as and when they happen. If you haven’t been keeping accurate records, you can use crypto tax software to help you with accurate transaction details.
#4 Don’t forget those losses
While you have to make sure you pay your Capital Gains Tax on time, do take your crypto losses into account when you’re filing your tax returns. Let’s say you make a profit on selling Bitcoin during the year, but you make a loss on selling Ethereum in the same year. You can deduct the losses on Ethereum from the Bitcoin profits when calculating your total capital gain.
Not only that, but you can also deduct your losses from your capital gains in future years until you have completely offset your losses against your gains. So make sure to keep accurate records of your losses. Also, make sure that you file your tax returns even if you make a net loss in a given year and don’t actually have to pay any cryptocurrency tax.
#5 It’s the right time to make an unprompted unqualified disclosure
Revenue departments around the world are starting to investigate crypto tax defaulters. If, for any reason, you haven’t paid any crypto taxes so far, don’t wait for an investigation or audit by Revenue. Simply contact Revenue and make an unprompted unqualified disclosure, including complete details of the crypto investments you’ve made over the years, and the interest arising from this (which is currently charged at 2%). You might have to pay a penalty as well (the amount is decided by Revenue). However, this kind of disclosure is a much safer bet in the long run.
As Revenue starts doubling down on crypto tax evaders, take this time to make sure your crypto taxes are in order. If you feel a little lost and in need of professional help, consider hiring a crypto tax accountant; you’ll end up saving a lot of money over time.
About the author:
Robin Singh is the co-founder and CEO of Koinly.io – a cryptocurrency tax platform that automatically generates capital gains reports for Ireland, UK, USA & other countries.