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How to legalize profit made on cryptocurrency

Margareth Nail

The legalization of revenues derived from the sale of cryptocurrency and mining is one of the most discussed issues within crypto community. Bitnewstoday.com considered options for turning funds received from various operations with cryptocurrency into legitimate revenues.

The issue of money laundering is not raised until the earned amount exceeds a certain threshold. However, when it becomes significant and draws attention of tax and other bodies, a question arises - how to bring these funds out of the shadows.

Some newcomers to the cryptosphere mistakenly believe that crypto exchanges, like traditional exchanges, are tax agents and pay taxes on user-earned revenues by themselves. This is not true. Crypto exchanges work in an anonymous mode, so it is not even a matter of identifying the user, let alone paying his taxes.

While the funds remain within cryptosphere, that is, on exchange or in crypto wallets, no taxes are needed to pay. But when these funds are withdrawn to a bank account in a form of fiat money, for example, it is already an income that has got into the "clean" legal field and requires legalization.

Experts point out that unless there is no relevant legislation it won't be completely legal for cryptocurrency owners to fix their income by exchanging their digital funds into fiat money. In order that the income from purchase/sale of a cryptocurrency could be registered by the state regulator, and the owner could pay all the relevant taxes, the law on cryptocurrencies should contain such provisions as: what are cryptocurrencies, how they are created and purchased, how are used. Before the adoption of this legislation, all owners of cryptocurrency remain at least in the gray zone, and in countries where cryptocurrencies are explicitly banned - they violate the law.

"Consequently, the only possible option to legalize the funds received from the sale of cryptocurrency is to declare them as a means of payment for any other real services. It is also possible to donate money from one person to another, as a result, in a number of countries there is also a duty to pay the tax,"advises the founder of "Pravorobotov", a member of the Expert Council for Digital Economy at the State Duma of the Russian Federation Nikita Kulikov.

It is also possible to declare your income received from the purchase or sale of cryptocurrency or mining and pay taxes, as with ordinary income of an individual. In this case, it is worth considering, that if cryptocurrency is banned in this or that country, then such an initiative can result in criminal sanctions.

The procedure for the declaration of income received from cryptocurrency transactions does not differ from the procedure for declaring ordinary income. However, there is a subtlety that should be taken into account. In view of the fact that all operations with cryptocurrency are carried out in an anonymous mode, it is impossible to prove the amount of your expenses and the tax will most likely need to be paid from the received amount.

For example, bitcoin was purchased for $2,000, and sold for $7,300, thus the total income is $5,300. It would be logical, to pay the tax from this amount. However, it is impossible to confirm that you had spent $2,000, therefore, the state can request a tax from $7,300. In some cases, the amount of tax may exceed the amount of income.

To minimize the risk of such situations, experts advise transferring funds to crypto exchange by means of bank payment, rather than via anonymous wallets, so that in case of controversial situations, there would be an opportunity to confirm the purchase.

There are also some options of withdrawing your incomes from crypto zone into a traditional economy without losses, experts point out. So, for example, experts suggest that you can open an account in an offshore zone, deposit it with your funds from crypto exchange, and then transfer it to a bank account. However, it should be taken into account that such schemes are in many cases considered fraudulent.

As a result, we can conclude that if the amount of income received from operations with cryptocurrencies is small, then it is better to transfer small amounts to digital wallets and keep them there. However, when it comes to larger sums, it is better to pay taxes.

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