Investing in virtual currencies, that is, in cryptocurrencies, is gaining popularity every year. In terms of taxation, their trade is governed by its own specifics.
Taxpayers earning on cryptocurrencies should keep special rules. They must also document all transactions in a specific way. The same applies to people who make settlements through virtual currency.
Just a few years ago, the settlement of income from cryptocurrencies raised many interpretive doubts. Since 2019, this issue in the field of PIT has been clarified and somewhat simplified by implementing appropriate regulations.
In this article, you will learn what PIT settlement issues look like in the case of a paid sale of cryptocurrencies, the cost of obtaining income and not only. It will also provide information on how tax authorities consider tax settlements for virtual currency from individuals.
How to settle cryptocurrencies in PIT-38?
It turns out that in the settlement for 2022, the settlement of cryptocurrencies is carried out on slightly different principles than in previous years. Currently, there is a different grouping of revenues into tax sources, and in addition, the rules for accounting for costs are different.
According to the current legal footnotes, the difference between the sale price of a cryptocurrency and the cost of acquiring a virtual currency is capital income, which, of course, is subject to taxation.
When it comes to the sale of virtual currency, the individual should calculate the difference between the sale price and the cost of acquisition, taking into account transaction costs – Stock Exchange Commissions, etc..
Attention, important! If the cryptocurrency held has been held for more than a year, then the income can be considered as one that is taxed at a linear tax rate of 10 percent.
PIT 38 tax return for cryptocurrencies in paper and electronic form
A PIT 38 tax return can be filed in both paper and electronic form. For this first option, you need to go to the Tax Office. You can also send them by mail, preferably by registered mail. In this case, it is necessary to pay attention to whether the tax return was issued at the Post Office of the public operator, i.e. the Polish post. It must also be sent before the deadline for submitting this statement.
It will be much easier and more convenient to settle cryptocurrencies electronically. A statement in this form may be made by:
- in the Your e-PIT service, the option is available on the e-Tax Office website.
CoinLedger – cryptocurrency tax software
CoinLedger, as already suggested in heading, offers several advantages over other methods and cryptocurrency tax software. The most valuable is that it provides an automated solution for transaction tracking and tax reporting. All tax reports are geographically tailored and compliant with local regulations.
The software works by importing all user transactions onto the platform, consolidating assets for display on a single dashboard, and generating compliant tax reports that can be submitted directly to regulatory authorities or exported to traditional tax software such as TurboTax, H&R Block, or TaxAct.
- Automated Tax Reporting: CoinLedger provides an automated solution for transaction tracking and tax reporting, making it a seamless experience for users.
- Variety of Tax Reports: Users can generate a variety of tax reports, such as gain and loss reports, tax loss harvesting reports, cryptocurrency income reports, IRS Form 8949, and audit trail reports.
- NFT Tax Software: The software allows users to consolidate NFTs across multiple chains and track their gains and losses from trading NFTs, a feature largely unavailable with other tax software.
- Intuitive Portfolio Tracking: CoinLedger provides a portfolio tracking tool that consolidates all transactions into one dashboard, offering insights into trading data, portfolio value, and income data from activities such as staking, lending, and liquidity mining.
- Geographically Tailored Tax Reports: The tax reports generated by CoinLedger are geographically tailored and compliant with local regulations, beneficial for users across the globe.
- Security Measures: CoinLedger has implemented extensive security features, including complex encryption standards and hosting all servers on CoinLedger’s virtual private cloud (VPC).
- Cost-efficient Pricing Options: The software provides cost-efficient pricing options for investors of all levels, and also offers a free version for users who wish to use the portfolio tracking capabilities.
- 14-day Money-Back Guarantee: This provides assurance for users that they can get their money back if they are not satisfied with the service.
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Calculation of the tax base
The tax base is income, that is, income less the cost of obtaining income.
Income is generated when the sale of cryptocurrency is made on the exchange or in the exchange office, that is, they are exchanged for legal tender.
Moreover, income is also generated when payment is made in cryptocurrency for a good, service, as well as property rights that are not virtual currency, or when other obligations are regulated. Income for the sale of cryptocurrency is not combined with other income from monetary capital.
Cost of revenue
The cost of obtaining income from the paid sale of virtual currencies must be documented as expenses directly incurred for the purchase of virtual currency. This includes the costs associated with the sale of virtual currency, including documented expenses incurred in favor of intermediaries in the sale of cryptocurrencies.
Any costs incurred in a particular tax year must be shown on the annual return, regardless of whether the revenues were generated in the same year or not.
If in a given tax year there were expenses for the acquisition of cryptocurrencies that exceed the transition obtained from their sale, the excess cost of obtaining income will increase the costs for the paid sale of cryptocurrencies in the next tax year.
By this in the following the above-mentioned Surplus should be treated in the same way as the costs that are incurred on an ongoing basis.
What can not be considered the cost of obtaining income?
What is important, the costs can only include expenses directly related to the sale and sale of cryptocurrency. This means in short that the cost of obtaining is not considered to be the cost of financing the purchase of virtual currency, i.e. loans and the like.
If, on the other hand, cryptocurrencies are obtained through so-called mining, then the costs of obtaining income cannot be considered expenses incurred for the purchase of equipment that is intended for so-called mining. The same applies to the purchase of electricity consumed in connection with the use of digging equipment.
Moreover, the costs also do not include expenses related to the exchange of cryptocurrencies for another virtual currency.
How much is the tax on cryptocurrency income?
In summary, on the income that you get from the paid sale of cryptocurrency, you must pay a PIT tax of 19 percent.
When do you have to settle with cryptocurrencies?
Every taxpayer buying and selling cryptocurrencies cannot forget their annual tax return on Form pit 38.
This obligation applies not only to people who in the previous year received income from trading virtual money. It turns out that also the acquisition of virtual currency must be presented in the tax return.
It should be emphasized that the exchange of one cryptocurrency for another does not create this obligation, regardless of whether it is made on the exchange or individually.
In practice, a taxpayer who buys bitcoins and then exchanges them for another virtual currency does not have to account for it on an annual return, as this does not generate income. It is only when he exchanges cryptocurrencies for a legal means of payment, that is, for a traditional currency using the Free Market, Stock Exchange or exchange office.
It should also be remembered that revenue is generated when a good or service is paid for using Cryptocurrency.
Importantly, the cost of obtaining income from trading virtual currency is carried out at a rate of 19 percent. In the case of cryptocurrencies, the tax base is income, which is understood as income less the cost of obtaining it.
Does the purchase of cryptocurrencies need to be shown in the PIT?
Polish tax law clearly states that the purchase of cryptocurrencies should also be shown in the PIT tax declaration, i.e. Personal Income Tax or CIT-corporate income tax.
What is important, when buying a virtual currency, our legal regulations do not force the taxpayer to pay tax, since it is calculated only at the time of paid sale of virtual currencies.
In order to be able to properly account for income from cryptocurrencies in the future, it is recommended to keep accurate records of purchases of virtual currency. It is important to record the dates, prices of their purchase, as well as potential transaction costs.
Cryptocurrency income and tax
With regard to income obtained from the sale of virtual currencies for consideration, they are treated as income from monetary capital. They are subject to general taxation.
In the case of cryptocurrencies, this tax is also 19%. and it includes profits obtained from trading in virtual currency, as well as other transactions related to them.
This includes the exchange of cryptocurrencies, mining, and participation in ICO (Initial Coin Offerings). It should be emphasized that in the case of their sale, the difference between the sale price and the purchase price is subject to taxation, that is, we are talking about income or capital loss.
As for other liabilities, it turns out that not all crypto-related transactions are currently covered by specific tax laws. There is a bit of ambiguity in the income tax, so it is worth consulting with a specialist.
The best choice here will be an experienced tax advisor who will know what the tax laws regarding cryptocurrencies look like in a given tax year.
The taxpayer is always responsible for the purchase and sale of cryptocurrencies. It is worth noting that in the next tax year, the rules related to virtual currencies may change slightly.
Interestingly, when it comes to goods and services tax, cryptocurrencies are no longer treated as a property right. The Ministry of Finance points out that according to the VAT Act they are classified as means of payment.
It is worth remembering that in the context of cryptocurrencies, property law may apply to regulate the rights and obligations that are associated with the possession, transfer and inheritance of virtual currencies.
Economic activity and cryptocurrencies
As part of your business, tax settlements on cryptocurrencies can be a bit more complicated than for individuals. The statement does not need to be submitted in the case of running a company referred to in Article 2 (1) (12) of the act on the Prevention of money laundering and terrorist financing, the revenues of which are classified as non-agricultural business.
In general, in the case of transactions related to virtual currency, the income or loss of monetary capital associated with trading, exchange or its extraction can be considered as income or expenses related to running a business.
Depending on the type of business activity, the taxpayer may be obliged to keep records, settle VAT, and also submit tax returns.
The issues in this case can be a bit complicated, so a tax advisor will be the best solution here.
What threatens for the lack of settlement of cryptocurrencies?
If the tax on the profit from cryptocurrencies has not been settled, there may be some legal consequences.
In case of non-calculation of profits from cryptocurrencies, you can still file a so-called Active regret. However, people who try to hide their income from virtual currencies can expect not only financial penalties, but also imprisonment.
For improper settlement of profits from cryptocurrencies or their non-settlement at all, tax authorities can impose a financial penalty. Their amount is from a few to several dozen percent of the unpaid tax. Financial penalties are the most common.
It is worth noting that the tax authority may also initiate an investigation to verify the correctness of tax settlements concerning virtual currencies. In this case, documents and transactions related to cryptocurrencies are examined.
In case of untimely payment of taxes on profits from cryptocurrency, the relevant authority may impose interest for the delay.
The most serious is by far the criminal tax procedure, which takes place when irregularities in tax settlements related to virtual currencies are considered deliberate. We are talking about a situation where there is a suspicion of tax avoidance. In this case, the penalty may even be imprisonment.
It is worth mentioning the Polish tax law. According to the Penal Code, a taxpayer who evades tax, does not disclose the subject matter or the tax base to the authority or does not submit a declaration, thereby exposing the tax to depletion, is subject to a fine of up to 720 daily rates. It also carries a penalty of imprisonment or both. I am referring, of course, to Article 54 §1.
Therefore, it is very important to timely settle the tax on profits from cryptocurrencies. Otherwise, the tax is threatened with severe penalties.