Pay Tax

You can earn a certain amount of income each year, called your Personal Allowance, before you need to pay any Income Tax. In general, everyone gets the same Personal Allowance, of which limits may be subject to change within one country or may vary from country to country

eg. United States

File Form 8843 if you are tax exempt. The United States and permanent residents of the United States must report their worldwide income in the U.S. tax returns. However, as the U.S. has a tax treaty with many countries (including India), you will not have to pay double taxes.

Virtual Currency

Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. A virtual currency, such as Bitcoin, that has an equivalent value in real currency or that acts as a substitute for real currency is called “convertible” virtual currency. Convertible virtual currency is treated as property for tax purposes.

In general, Bitcoins should be declared when filing a tax return and are considered additional assets. Bitcoins in your possession may be levied by a property tax. Profit as a result of an increase in price is considered capital gains.

Form 8949 Individual taxpayers report Bitcoin capital losses and capital gains.

Penalties: Failure to timely file or correctly report virtual currency transactions, may be subject taxpayer to information reporting penalties under Code Sec. 6721, 6722 and tax underpayments attributable to virtual currency transactions, may be subject to accuracy-related penalties under Code Sec. 6662.

FinCEN Form 114: A US person that has a financial interest in or signature authority over foreign financial accounts must file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. FBAR requires reporting of all foreign financial accounts. The types of “accounts” which must be reported are defined very broadly and include traditional checking, savings, money market funds, CDs, life insurance plans, and even online Bitcoin based poker accounts. A US taxpayer’s Bitcoin denominated foreign bank account or an account in a foreign virtual currency exchange, which convert Bitcoins in and out of other fiat currencies, that function similarly to brokerages, and offer a variety of financial services similar to banks or other financial institutions in exchange for fees would be reportable on an FBAR as a foreign financial account.

Penalties: US Bitcoin denominated foreign account holders who did not file FinCEN Form 114 could face steep civil and criminal penalties. Each non-willful failure to file violation can carry a civil penalty of $10,000, while penalties for willful violations could be the greater of $100,000 or 50 percent of the amount in the account for each violation.

Form 8938: US individual taxpayers report foreign financial assets valued at $50,000 or more.

Penalties: Noncompliance with FATCA subject’s taxpayer to, taxes, severe penalties in excess of the unreported foreign assets and exclusion from access to US markets.

Form 8975: MNE disclosed to tax authorities information regarding Bitcoin transactions, on a country-by-country basis as follows:

  • Tax jurisdiction and residence of the entity;

  • The main business activity or activities of entity;

  • Financial and employee information for each tax jurisdiction in which the US MNE does business (including revenues, profits, income taxes paid and accrued, stated capital, accumulated earnings);

  • Total net book value of tangible assets, which may include virtual currencies because they are classified as property and not a currency for US tax purposes (cash or cash equivalents, intangibles, or financial assets were not declared).

The IRS will automatically exchange filed CbCR with other governments via tax treaties and Tax Information Exchange Agreements. On July 4, 2017 the EU parliament approved making CbCRs publicly available.

Penalties: MNEs that failed to file a CbCR could be subject to penalties under US federal tax rules, and to penalties under rules imposed by the 57 other countries that have agreed to exchange CbCR. The US Supreme Court said in Pasquantino v. US (No. 03-725, 4/26/05) that federal wire fraud charges could be brought against violators of foreign tax laws.


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