Everyone likes to talk about their cryptocurrency of choice going to the moon... what I don't hear mentioned is that un-welcomed passenger that is likely to be hitching a ride on those space voyages, the taxman.

In this morning's blog I talk about taxes as it's been on my mind recently.

Clear as mud

***** Caveat - I'm not a tax adviser nor a financial adviser, I'm just a simple guy trying to make sense of this tax nonsense! *****

In the UK, the tax picture is murky. It's tempting to think this is specific to cryptocurrency however I believe this is the nature of tax law. If taxes were straight-forward we wouldn't need tax advisers and accountants.

The 'tax authorities' are just human beings like me and you and thus are trying to unpick tangled tax webs that have either been created by others or they've created themselves. They aren't 'gods' and will often know less about your activities than you do. So part of the process of paying tax will likely be to educate the tax man as to the nature of your activities. Don't forget this and don't just bow to handing over as much money as you can to avoid going to jail.

The boring stuff

I'm in the process of trying to work out the tax status of my investments in time for when I need to do returns. To my mind there are a number of ways cryptocurrency activity can be framed. Some views are advantageous to cryptocurrency holders other not so.

Here is my broad understanding of the landscape (in the UK):-

• 0% "It's all gambling!" There is a school of thought that says that cryptocurrency investing is so speculative that it is akin to gambling. Winnings from gambling are not taxed in the UK. Indeed there are some in the UK who are attempting to declare their cryptocurrency gains as gambling winnings. It will be interesting to see how this plays out however I wouldn't hang my hat on the HMRC treating all crypto gains as gambling winnings. You'll still need to frame your argument and present your facts appropriately. This is where getting a good adviser could help. My thoughts are that, eventhough punters don't get taxed through gambling, governments are used to getting their pound of taxes from gambling establishments (casinos, bookmakers etc.), I'd caution against thinking they would wash their hands completely of taking taxes from cryptocurrency activity. However many of us have taken a leap in the dark with this technology. Made losses, sometimes year-on-year (e.g. from 2014 to 2016) without seeking tax relief nor clear tax advice... we've lived (and still live) by the motto that it can all go to zero at any time. If government's are going to tax the good days, are they will to provide tax relief in hard times?

• 20% It's capital gains baby! If you bought bitcoin for $500, did nothing with it for a few years and sold it for $10,000 (in the UK), you’d most likely be liable for capital gains tax (CGT) unless you can make the ‘gambling’ argument above. What isn’t clear (at least in my mind) is what happens if you didn’t just leave your money in bitcoin. What if you bought some Ethereum, bought and sold some Dash, lost some Litecoin when Mintpal collapsed. Bought some shitcoins that went to zero? What if all your $500 bitcoin purchase has ballooned to $100,000 with some savvy/ lucky investment decisions? Do you simply pay capital gains on the $100k. To what degree do you need an audit trail on your activities in between the $500 going in and the $100k going out so as to not fall foul to any suspicion of money- laundering? To make life easy on everyone there is an argument to apply CGT based on fiat in and fiat out but who know how governments will approach this area, I've yet to get a clear and definitive answer.

• '40% You're paying yourself, that smells like income' There is some activity around cryptocurrency that is difficult to quantify. For example posting, voting and commenting on Steemit. I have a personal bug-bear when people refer to upvoting themselves as "paying themselves". It also implies that you own a company that you're drawing income from putting you squarely in the realm of income tax liability. When actually you are not paying yourself or anyone else, when you upvote. You are attempting to have a say in how Steem rewards on the Steem blockchain are allocated. Your upvotes can be counteracted by upvotes on other posts and downvotes on your votes. Therefore any rewards allocated to you are subject to the consent (implied or explicit) of the community as a whole. While 'being able to pay yourself' is a nice sales pitch to those trying to make a quick buck, it is inaccurate and worst sell could have adverse tax implications if that's the rhetoric the taxman is being sold.

• Thresholds/ Relief - Other things to consider are the thresholds and relief. For example, in the UK, CGT has an annual exemption. It may be that the amounts your earning per year are small enough not to be taxed. However it is better to know where you stand upfront than to be hit with a tax bill on money already spent.

Strict liability

If you have ambitions to make life-changing money out of cryptocurrency; you should consider the strings your government attaches to wealth building. Regardless of your personal views on it, tax is a strict liability obligation in most jurisdictions. Evasion often comes with a prison sentence attached.

If you’re anything like me, it’s easy to get carried away with the figures that are fluctuating daily in your crypto portfolio. However that is a gross figure. I’ve yet to see the app that factors in tax and other expenses. Hopefully this post/ vlog will provide some food for thought!

Steem on.