The global economy is plunging into crisis. The COVID-19 first paralyzed production in China, and then stopped hundreds of enterprises in Europe and Asia, followed by the United States. The sudden disruption in the global economy could instigate a global recession in 2020. According to S&P analysts, the annual growth of world GDP will not exceed 1–1.5%, and the second quarter of the year will be the hardest.
In order to prevent poverty and a serious economic crisis, all the countries considered plans to increase budget support for their economies. Support is expressed in an increase in direct budget allocations, a reduction in tax payments or their deferral, and the provision of state guarantees to the financial sector for transactions in the real sector.
Let’s discover what you can do to shorten your crypto tax expenditures during this difficult time.
US Measures to Mitigate the Covid-19 Crisis
The COVID-19 pandemic harmed small and medium-sized enterprises (SMEs) the most. In order to somehow cope with the crisis, companies are trying to restructure their businesses. They can focus on online operation, reduce production volumes, and send employees on compulsory holidays. But this is not enough. Without the support of the state, the lion’s share of small companies would not survive the consequences of the coronavirus.
The US federal law called Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was approved on March 27, 2020. It was accepted in accordance with the legislation on emergency situations in the country. It will provide for loans to save jobs and simplified provisions for loans to SMEs, which continue to pay wages. The volume of budget funds for the SME aid plan is $350 billion. It grants up to $10 thousand for SMEs to cover operating costs and a provision of credits up to $10 million for companies with up to 500 people. All costs of the loan aimed at salaries, rents, and debt can be written off (not repaid) provided that jobs are saved by the end of June.
During the pandemic, the USA also decided to allocate direct cash payments to all US citizens with an income of fewer than $99,000 per year. The size of the payment was $1,200 per 1 adult (maximum size, with a decrease depending on the average wage) and $500 per child. The amount of the budget funds held for this aid program is $300 billion. Payments to citizens who have been dropped out of their jobs in a crisis are also expected. The amount of this compensation is 100% of the salary for 4 months. The amount of budgetary funds for this aid program is $250 billion.
As for the opportunity to receive job loss benefits for self-employed people who filed tax returns, students can get a loan from the employer up to $5,250. The funds are exempt from income tax. Single-family homes secured by federal mortgage loans may require up to one year for processing of funds. There is a moratorium on fines and evictions for households who have purchased apartments/houses on mortgages insured by the Federal Housing Administration or the Department of Veterans Affairs for 180 days, with the possibility of extension at the request of the tenant for another 180 days. It has been established that all private insurance plans must cover COVID-19 treatment, the vaccine, and all coronavirus tests.
Note: As of now, over 22 million Americans are receiving unemployment compensations, and those payments are not provided for free. Numerous citizens do not suspect that the payments they collect in 2020 are taxable. Thus, even individuals who have experienced a notable decrease in their cumulative earnings because of a work loss in 2020, might nevertheless receive a tax bill in 2021. Tax specialists indicate that you do not need to pay Social Security and Medical care taxes on the received state unemployment benefits, as you pay, for instance, on wages. However, these compensations are considered taxable events by the federal government and probably your state. Furthermore, if you will not pay sufficient taxes during the year, you may also pay fines and interest.
Taxation Measures to Face the Coronavirus
A coronavirus pandemic can trigger a financial crisis, which, according to some estimates, will become more noticeable for the global economy than the 2008 crisis. In this regard, in many countries measures are being taken to support the economy, businesses, and the labor market. In some places, the authorities are going to support ordinary citizens. At present, researchers have studied how governments of different countries are going to help the economy and the population cope with the crisis.
Among the EU countries, the Swedish government has taken the most radical course of action. The Scandinavian kingdom provided an opportunity for businesses not to pay taxes over the coming year. Thus, the Swedish state treasury may not receive about 27.5 billion euros, but the authorities decided that trying to save a business from ruin is worth the money.
Hong Kong authorities have proposed a different approach to stir up the economy in times of crisis. They decided to allocate 10 thousand Hong Kong dollars for each citizen. Economists question the effectiveness of this method. The reason for this is the isolation and poor mobility of residents, who will find it difficult to simply leave their homes and start spending the allocated material assistance. Despite criticism from experts, US authorities resorted to methods similar to Hong Kong’s approach.
Some countries introduce business tax credits to help overcome the effects of the coronavirus epidemic. Secretary of the Treasury of the US Steven Mnuchin also suggested that companies would be granted tax breaks to increase cash flow, adding that he is considering alternatives to the IRS.
Moreover, in countries with large economic assistance packages, a significant share of support is state guaranteed. The main source of direct appropriations and replacement of shortfalls in budget revenues is debt financing. At the same time, some countries, citing emergency circumstances, suspend budgetary rules that limit the volume of borrowed funds. The vast majority of countries do not provide separate measures to support the financial sector at the expense of the budget. Large and small businesses are supported through approximately the same set of measures, but the specific list varies from country to country. As a rule, this set includes guarantees and preferential conditions for loans, a temporary moratorium on bankruptcy proceedings and deferrals, a reduction of tax payments, and the cancellation of fines and penalties for late payments.
Minimizing Your Crypto Taxes During the Pandemic
Regardless of what COVID-19 will do to the crypto market, you still need to pay your taxes by the 15th of July. And we know ways to reduce the amount you owe to the IRS.
Reduced Income Tax on Mining
In the United States, you can get a better tax if you are setting up a company or business entity for your mining activity instead of mining as an individual entrepreneur. Thus, you can take advantage of tax benefits that business owners receive for paying for business-related expenses. Business owners can get a better tax rate than individuals. Is there a high-end Bitcoin mining computer? Report it to your business and reduce your taxable income. Do you have a computer that has mining hardware installed, such as ASICS and the expensive GPUS? Do you spend a ton of electricity while mining? Congratulations! You can get tax benefits on the rewards you received for mining.
Realizing Crypto Losses
It is vital to remember that claiming losses for tax purposes differs from losses in your portfolio. In general, the tax guidance allows the deduction of only realized losses.
For tax purposes, you can’t deduct a simple decrease in the market value of your holdings as they are not realized. When you sell/trade your assets, these losses become real, and you can deduct them from your taxes.
The Collection of Tax Losses is Crucial
If you convert unrealized losses into realized losses, you can receive a deduction when filing taxes for the previous year. To realize such a loss, you simply have to sell assets that decreased in value. You also have the opportunity to purchase the same assets at a much lower price (without prejudice to the ability to deduct losses), because the wash sale rule does not apply to crypto under current regulations. By the way, a good crypto-tax tool can help collect tax losses.
Note: Capital gains taxes on investments that you held for over a year can be much lower than on those you held for less than one year. So it is much more profitable to be a long-term holder.
Beware of the Margin Elimination Tax
The realization of some of your losses is vital if you want to compensate for the sudden capital returns as a result of the liquidation of the margin. If you trade on margin, there’s a possibility that your primary margin was liquidated because of significant price fluctuations. If you trade at high leverages, even mild market imbalances can compel liquidation, which can result in a capital gains tax.
Loss of Transfers to Offset Future Taxes
According to the tax code, you can claim no more than $3,000 of capital losses in your tax returns. Still, losses over $3,000 can be postponed for an undefined period of time for the future. You can then use those losses to compensate for the future profits of crypto transactions. To take full advantage of this outline, you need to realize your losses as described above.
Cryptocurrency transactions can be profitable, but remember that you must pay taxes on such transactions.
Individuals pay income taxes. A crypto investor must deduct the amount that he spent to purchase cryptocurrency from the amount in dollars received as a result of “cashing out” that cryptocurrency. The resulting difference should be filed in the tax report.
Checking the Tax Level of Your State
Different states have different tax laws. Some states, such as Florida, are considered “retirement shelters” because you do not have to file individual income and death taxes, and you will receive asset protection and property tax advantages. As for crypto investors, in some states, for example, in Wyoming, there are large tax incentives for cryptocurrencies and companies, since cryptocurrencies are exempt from property taxes. As cryptocurrencies become more and more popular, one can expect that more and more states will develop laws that encourage businesses and individuals to bring their cryptocurrencies and money there. That is why, when paying taxes on crypto, it is important to keep abreast of the latest developments in the industry.
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Originally published at https://medium.com on June 30, 2020.