The main reason is that Bitcoins are treated as assets, not currencies, in most countries.
The United States tax treatment of Bitcoin is one of the primary reasons for this development, followed by similar tax treatment in Japan and Australia. However, countries like Singapore, which have adopted less stringent ways of dealing with Bitcoins, are yet to be persuaded.
After extensive investigation, some major accounting firms like Deloitte and E&Y have suggested that Bitcoin be treated as a trade ethereum asset for tax purposes in their countries.
Is it required to acquire bitcoins?
Bitcoin can be accounted for in three ways: First is the Traveling method which is more prevalent. Second, as a Security held by an investor, and third as an investment in a fund or company.
Bitcoins travel from one account to another via electronic transfer of ownership, and they can be accounted for, making it a taxable event.
Secondly, Bitcoins can be bought and sold just like a stock, making it an investment asset once the person sells it. In such a case, the Bitcoins initially purchased are marked at cost price and gains or losses calculated on their sale price. This calculation method is followed for all real estate, stock, or Bitcoins investments.
Bitcoin can be held and treated as a security in the same way corporate stocks are owned and investment profits taxed accordingly in most countries.
Are there implications if Bitcoins are accounted for?
The impact of taxation on Bitcoin has been tremendous, which has increased its popularity in some jurisdictions where there is no tax, such as Singapore.
The accounting impact of Bitcoin is relatively intense as it becomes more popular and increases in value. The reasons are many, but major ones include new tax reporting requirements for payments using this new currency, audits of companies holding Bitcoins or receiving income in BTC payments, etc.
Seven reasons why Bitcoin accounting is necessary?
As the popularity of Bitcoin increases, accounting for it becomes a necessity. The following are a few reasons why:
1) Bitcoins should be marked to market at the end of each quarter as per US laws. This means that if a person bought BTC 1-year ago and sold it today, he should mark the cost price difference as capital gain/loss. This needs to be done every quarter if one has sold Bitcoins in that period or at the end of the year otherwise.
2) Bitcoins are treated as Assets, and losses should be offset against gains whenever a capital loss is incurred. For example, if a person bought 1 BTC a year ago for 500 USD, he should mark it down from his stock of Bitcoins at 500 USD even if he sold it for 1000 USD today. This has to be done every time a Bitcoin is sold so that the market value of all Bitcoins held can be accurately determined.
3) For employees paid in BTC, tax treatment varies from country to country and hence needs to be accounted for. For example, in countries like the US, Japan, and Australia, BTC is treated as an asset or investment, and taxable events need to be marked.
4) If Bitcoins are held as securities, then quarterly mark-to-market needs to be reported as well. Also, if a person has bought 1 BTC last year for 300 USD and sold it today for 1000 USD, he pays a capital gains tax of 700 USD. This, too, needs to be done every time Bitcoins are traded.
5) If Bitcoins are held as cash and used for payments, they should be treated as crypto investment platforms, and also, taxable events need to be marked when they are used for payment.
6) For companies with Bitcoins as their business or personal assets, individual transactions must be accounted for and taxable events marked.
7) In case of theft or loss of Bitcoins, the company needs to follow the same accounting procedures as real cash. This is done so that if a company’s wallet with 500 BTC is lost/stolen, they don’t have to declare bankruptcy. Instead, they can recover the loss/theft from their business income or personal assets.
Bitcoin exchanges are now being forced to provide account holder information. BTCChina has already begun following the same procedure as banks so that currency exchange is done via banks and withdrawals are verified by bank accounts. It would become irrelevant to hold BTC as an investment if all exchanges practice this.
Conclusion:
Bitcoins are not different from any other assets, so they should be accounted for. This is necessary to avoid tax evasion, money laundering, etc. The more this currency is accepted, the more critical it becomes to account for them.
