As institutional adoption of cryptocurrency expands, companies must be mindful of taxes that come with investments in digital assets. It includes understanding capital gains tax, accurate record-keeping, compliance with reporting obligations, and the need to stay informed about changes in regulations. Let’s drill down on it.

What Should I Know About Cryptocurrency Taxation?

The emergence of institutional trading brings a range of tax aspects that participants must navigate:

• Capital gains tax. Crypto earnings, be it from trading or investment, may be subject to capital gains tax. The rate depends on the holding period, with long-term gains often taxed lower than short-term gains.

• Cost basis calculation. The cost basis is the amount you initially spent for acquiring digital assets plus any fees you paid for the transaction. Determining the cost basis for tax purposes can be complex, especially for institutions with numerous transactions. Proper record-keeping and accounting practices are essential in this case.

• Reporting requirements. Institutions must adhere to reporting requirements, which may include filing forms such as Form 8949 in the USA. Accurate reporting ensures compliance with tax authorities.

• International taxation. Institutions engaged in cross-border crypto trading face additional complexities with taxation. They should consider double taxation agreements and jurisdiction-specific rules.

• Business or investment category? Tax treatment differs between crypto activities conducted as part of a business or investment. Institutions must categorize their activities to determine the applicable taxes.

• Documentation. Maintaining comprehensive records of all crypto transactions on an institutional crypto platform (timestamps, amounts, etc.) is essential for tax compliance and audit.

• Tax efficiency strategies. Institutions can explore tax efficiency strategies, such as tax-loss harvesting, to reduce taxes and optimize returns.

Given the complexity of crypto taxation, institutions often seek the assistance of tax professionals or firms specializing in crypto tax matters to ensure compliant tax practices.

Conclusion

Institutional crypto trading introduces a range of tax aspects that necessitate careful consideration, adherence to reporting requirements, and implementation of tax-efficient strategies. Staying informed about tax regulations and seeking professional guidance can help institutions effectively navigate the tax landscape in the cryptocurrency market.