If you’re reading this, chances are you’ve benefitted from the incredible cryptocurrency surge in March 2024. Congratulations on your success! However, with great gains come important tax responsibilities. This blog will guide you through assessing your personal tax position and ensuring you meet all your obligations.
The Impact of the Crypto Boom
The cryptocurrency market experienced a significant boom in March 2024, leading to substantial gains for many investors. Dog coins were back in full force and this time it was those on the Solana blockchain that made some big gains. If you traded in coins such as BONK or WIF, or rode the wave through trading Bitcoin, Ethereum, or exploring the vast array of other altcoins, the rapid appreciation in value has likely increased your portfolio substantially. While this is undoubtedly positive news for your financial position, it also has significant tax implications that must be carefully managed.
Understanding Your Tax Obligations
Capital Gains Tax (CGT): Any profits made from selling or exchanging cryptocurrency are typically subject to Capital Gains Tax. A common misconception with crypto is that a tax liability only arises when it is cashed out into fiat currency (i.e. £’s). However unfortunately this is not the case, and a taxable capital gain will arise when crypto is swapped for other crypto, including stablecoins such as USDT.
Income Tax: If you received cryptocurrency as payment for goods or services, these earnings are considered taxable income. Income tax can also arise on staking rewards or mining profits. Ensuring you report this income correctly is vital to avoid any potential penalties or interest charges.
Reviewing Your Personal Tax Position
Given the complexities involved in cryptocurrency taxation, it’s more important than ever to review your personal tax position. Here are some steps to consider:
Detailed Recording: It is crucial to maintain detailed records of all transactions, including the dates, values, and associated costs. Crypto tax specialist transaction software may make this process a lot easier to record. Tax rates and allowances can vary, so it’s essential to calculate your gains accurately and understand how they fit within your overall tax liability.
Seek Professional Advice: Tax laws regarding cryptocurrencies can be intricate and subject to change, and understanding the Blockchain can be just as complex! Consulting with a crypto specialist tax professional can help you navigate these complexities and ensure compliance with all regulations, we well as making sure you are maximising your tax relief available.
Utilize Tax Allowances: Make sure you’re taking full advantage of any available allowances and reliefs, such as the annual CGT allowance, or by making tax loss relief claims for assets that haven’t been sold but have lost all value such as some old NFT purchases. This can help in reducing your overall tax liability.
Plan for Future Liabilities: Consider the future implications of your crypto investments. With the market’s volatility, planning for potential future tax liabilities is prudent. Capital losses cannot be carried back to earlier tax years, so if you make a gain in a tax year it is prudent to put some money aside to settle the tax bill so that it is not lost in later crypto investment activity. In some circumstances gains can be deferred, for example by taking advantage of the tax benefits that arise from EIS or SEIS investments. Tax advice is crucial if you are considering this.
Encouraging Responsible Tax Planning
At Plus Accounting, we understand the excitement and potential that come with investing in cryptocurrencies. However, we also stress the importance of responsible tax planning. By proactively reviewing your personal tax position, you can ensure compliance and avoid any unwelcome surprises from HMRC.
If you’ve experienced gains from the crypto boom, now is the perfect time to schedule a review of your tax position. Our team of experts is here to help you navigate the complexities of cryptocurrency taxation and ensure you meet all your obligations while maximizing your tax efficiency.
Don’t let tax season catch you off guard. Contact us today to schedule a consultation and take control of your tax position.
Author: Mason King, Senior Corporate Tax Manager
Any views or opinions represented in this blog are personal, belong solely to the blog owner, and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. Please note that AI has been utilised in generating content for this blog.
Date published: 23 July 2024