This is the main takeaway from an informational article published recently by digital security-token (DSO) issuance platform Securitize.
Digital securities offerings (DSOs) are also commonly referred to as security tokens offerings (STOs) in the current parlance.
DSOs and STOs may be regarded as distinct from initial coin offerings (ICOs) in that are so far only sold to accredited investors across platforms striving to be fully compliant.
Securitize writes that, typically, crypto profits are taxable when a capital gain is collected from the market.
“In most countries (like the USA), cryptocurrencies are taxed as capital assets. Therefore if the asset appreciates in value and you sell/trade/use it for profit, the gains are taxed like capital gains.”
Losses may be deductible:
“If the asset depreciates in value and you sell/trade/use it at a loss, you may be able to deduct the losses against other capital gains to reduce your taxes.”
Amount of tax is usually measured according to factors such as:
- how long you have held the asset
- the specific regulations in your country/jurisdiction
Careful record-keeping is essential everywhere:
“Because each taxable event may create a capital gain, you need to know the date, cost basis, sale value, and any fees associated with each transaction.”
In addition to collecting gains by trading cryptocurrencies for other cryptocurrencies, ICOs, STOs or DSOs, or selling cryptos for national currencies (JPY, USD, EUR, etc.), the following may also be taxable events:
- Using cryptocurrency to buy a good or service
- Receiving cryptocurrency as a result of a fork or from mining
Purchasing cryptocurrencies or digital token products, making charitable donations, making small gifts of cryptocurrencies or transferring cryptocurrencies from wallet to wallet are typically not taxable, Securitize writes.
Tracking many crypto trades can be a complex affair, and Securitize suggests using CoinTracker software, “to automatically calculate your cryptocurrency capital gains per the rules above.”
Once all trades have been accurately recorded, crypto-trade tracking software reportedly provides a convenient tax summary.
The tax rate applied to digital security capital gains in the US, according to Securitize, “depends on how long you have held the assets and your ordinary tax rate.”
Short-term and longer-term gains are taxed differently:
“If you have held the digital security for one year or less, they are considered short term capital gains. In this scenario, the gains are simply added to your income for tax purposes and taxed at your ordinary income tax rate (2018 rates, 2019 rates). This is the higher tax treatment scenario.”
“If you have held the digital securities for more than one year, they are considered long term capital gains. In this scenario, the gains are taxed between 0 – 20% depending on your ordinary income tax rate (you can look them up here). This is the lower tax treatment scenario.”