How to Find a Good Cryptocurrency Lawyer
Weather forecasting appears child's play when compared to predicting the fluctuation of cryptocurrencies. The laws of this industry are different in various countries, making it difficult for everyone to understand its ups and downs. Most importantly, companies investing in cryptocurrencies are still not sure about the rules relating to taxes and opening bank accounts. That’s where the need to hire an experienced crypto lawyer arises.
Understanding tax laws for cryptocurrency trades
Before handing over the job to a crypto lawyer, it is essential to understand a few things about crypto laws on tax deductions. Suppose you traded a few cryptocurrencies like ether, bitcoin, and a few others via crypto exchanges such as Coinbase, Binance, or Gemini. However, with a crypto downturn, you ended up experiencing a capital loss of approximately $30,000. This is a massive amount, and you may already get headaches as you plan a strategy to revive this figure.
However, another headache that will soon grasp your head is filing taxes. If you don’t do it correctly, you may end up paying another $30,000 as penalties. Bitcoin was up by 686% in 2017, but its market went down significantly in 2018, resulting in a 55% below-par price. So, filing taxes for the income from 2018 is different from that of 2017. Investors will look to claim capital losses to reduce their tax bills, especially after such a bearish year.
So, if you are doing the same thing, you will maximize your capital loss claims by:
• Rolling over all your capital losses to the next financial year.
• Offset all your capital gains with other classes of assets in the current taxable year.
• Use the remaining capital losses to offset at least $3000 from your income.
Tax changes from 2018
2018 was a groundbreaking year for the crypto industry. There were wholesale changes in the tax laws for trading pairs and independent currencies. This means, you now need to have all the details of your bank records handy so that it is easier to calculate taxes before the filing date. If you can’t calculate everything, hand over the job to an experienced crypto lawyer. They are aware of all the regulatory changes in this industry.
According to the new laws, like-kind exchanges, such as crypto to crypto trades will now come under capital gains calculations. Previously, you only had to calculate capital gains while cashing out to some of the popular fiat currencies. With this change, you not only have to pay taxes on capital gains but also file for capital losses. This curtails your ability to claim for capital losses, as explained in the above example.
The new law states that all cryptocurrencies are taxed properties. It doesn’t matter whether you have bitcoin or some other virtual currency. The new law for like-kind exchange will help IRS to understand if there are any discrepancies in crypto to crypto transactions. So, you must have solid records for each and every transaction you make using cryptocurrencies.
Honestly speaking, it is a nightmare for traders to keep track of all their transactions. Moreover, if you are a regular trader, you would want someone to record these transactions every day. But, that is not necessary if you hire an efficient cryptocurrency lawyer. It is essential to record all your transactions in order to file the IRS 8949 Form. This is the capital gains tax form. Your lawyer will walk you through the entire process and explain how much tax you need to pay.
Laws for mining
Apart from regular traders and cryptocurrency companies, you also have miners in the mix. For crypto miners, the IRS considers mined cryptocurrencies as your taxable income. All the mined coins will come under your gross income. The taxes for this income are calculated based on the current market value of these coins. However, the lawyer has to take the filing method into account. This helps to determine whether you are a business miner or a hobbyist.
Many factors decide your mining status: your manner of mining, your expertise on paying taxes, and the average amount of profit you make. Hobbyists usually have to add their mining income in Form 1040. This allows them to bypass self-employment taxes. However, it doesn’t save them from too many deductions. On the other hand, business miners need to fill out the Schedule C form. This should include both their incomes and expenses for the current financial year. Unlike hobbyists, their income will have a 15.3% deduction as self-employment tax. However, they can claim for deductions against several incomes.
Importance of Cryptocurrency Lawyers
It is never easy to earn success in the crypto industry unless you have in-depth knowledge about cryptocurrency laws. As already mentioned, different countries have separate rules for taxation from crypto income. One of the most common challenges that crypto traders usually face is calculating their tax returns. Since the price of different digital currencies fluctuates, you can’t determine the exact amount of tax even at the last moment.
Apart from investors, even blockchain-related companies should have a permanent crypto lawyer working for them. Considering your company doesn’t deal in anything but crypto, you should pay more attention when it comes to hiring the lawyer. He/she should specialize in crypto dealings. There are excellent litigators swarming around, but you specifically need someone who is a crypto specialist.
For example, if you are searching for a real estate lawyer, you would want him/her to specialize with various legal issues related to buying and selling of properties. Similarly, the cryptocurrency lawyer should be qualified and experienced enough to handle tax deductions and bank accounts of the companies that hire them.
Understanding ICO and tokens
Investors who trade in utility and security tokens also find it challenging to calculate their taxes. With a cryptocurrency lawyer around, he/she will explain the entire process easily. It is easy to learn about different tokens and ICOs from the internet, but it is a different ball game altogether when you calculate taxes. All your earnings from ICOs and tokens should meet the investment and security requirements. Many people don’t know about these requirements, and that’s where the lawyer helps.
They prepare a Howey Test that helps to estimate the total worth of your investments in tokens and ICOs. Their evaluations depend on several factors, such as:
• Your strategy to invest in ICOs and tokens in the future.
• If you are earning any revenues from third-parties.
• Predicting your earnings from future investments.
• Investment in common enterprises.
Many investors are concerned about their investment security. According to some of the crypto lawyers, your investment plans need to fail in any one criterion mentioned above. If you are planning to sell your securities, you need to register with the Securities and Exchange Commission. It is essential to abide by the tax laws while revealing your transaction records. This will help to safeguard yourself from becoming an investment defrauder. This is another reason why you should consider hiring a crypto lawyer soon.
Most law firms are offering both security and utility tokens. But, each token has a different purpose in the blockchain ecosystem. However, from a legal standpoint, you are taxable for both types of tokens, regardless of the purpose. If you don’t understand when and why the tokens become taxable, you must consult an ICO or crypto lawyer for help.
In this digital currency era, investors consider cryptocurrencies as worldwide assets. This reflects why it is so crucial to have a record of all your capital revenues and losses accurately. Crypto traders face regular challenges to calculate their profit percentage when they deal with tokens. Since you can change crypto tokens or encash them into real currency, you can’t determine an accurate figure of your profit percentage. This makes it difficult to maintain proper crypto records, leading to the importance of hiring a cryptocurrency specialist lawyer again.
Role of the crypto lawyer
Crypto lawyers have a detailed understanding of cryptocurrency laws and legal obligations that investors and companies need to follow. If you planning to hire a crypto lawyer, he/she will explain and consult about the following things:
• Legality of security tokens, utility tokens, stablecoins, and ICOs.
• Whether a blockchain project will come under non-profit or profit corporation.
• Detailed records of crypto transactions. This will help to determine your yearly crypto tax arising from selling and buying digital currencies.
• Details about intellectual property right laws. This will include your tax liabilities while using open source copyright.
• KYC AML issues related to money service businesses and crypto exchanges. Many traders use different exchanges to trade. So, the calculation of tax will depend on how many exchanges you use and the currencies you buy and sell from each of them.
• Different regulatory regimes, especially the ones applicable in the US, Switzerland, Malta, etc.
Finding a Good Cryptocurrency Lawyer
Cryptocurrency has a promising future. But, the ever-changing tax laws make it difficult for traders to understand how they should file taxes. If you are not sure about the number of crypto transactions in a year, it is high time you hire a good crypto lawyer. Their advanced knowledge on the crypto industry will help you file the records correctly.
However, with so many companies claiming to have the best crypto lawyers in the industry, it is tough to decide who is better than the rest. So, how will you understand if the lawyer you are working with is capable enough to handle your records? Here are a few things you to consider before hiring the lawyer:
Remember, you are not hiring a personal injury lawyer or a civil attorney. Cryptocurrency laws are complicated. It is best to hire a law firm or lawyer who has a reputable background in securities law. This means they will have knowledge about the latest changes in crypto laws, rules, and regulations.
What’s the reputation of the lawyer among other crypto investors or companies? It is always wise to hire someone with good reputation. It means he has a positive record of helping clients with different crypto cases. Many investors hire lawyers to save them from money-laundering accusations. You may want to avoid these lawyers, but they are a blessing in disguise. These guys are experienced in this industry and know the ins and outs thoroughly. If you don’t have any illegal transactions, you should hire them.
Experience and in-depth knowledge: you should search for these two factors before hiring the crypto lawyer. He should also have the enthusiasm to stay updated with latest services and developments in the crypto industry. It is not easy to understand whether a lawyer is knowledgeable until you speak personally. Question him about the different laws and how he/she would handle your records. This also gives an idea about their familiarity with the latest changes in crypto tax laws.
ICO & Hedge Fund Crypto lawyers
According to ICO laws, cryptocurrency companies need to distribute tokens under a controlled environment. Many investors prefer to exchange their tokens when the price of the respective currency is on the higher side. This ensures a steady income, and they can purchase tokens using their revenues. But, the laws on different offer values are very stringent. You need to have detailed documents and records of transactions for every coin you exchange for virtual currencies.
Both hobbyists and business miners may not know the rate of deductions their income will come under while filing taxes. Again, an ICO or crypto lawyer will come to your rescue. These lawyers usually have worldwide license. Hiring them gives you further knowledge about local regulations. This will help to reduce any risks of money-laundering.
The bottom line is, even a crypto expert needs professional help when it comes to handling their trading records. Failing to meet the tax laws has severe ramifications. If you don’t want to walk on that path, you should consider hiring an experienced cryptocurrency lawyer, preferably one who has experience in the field you need help with.
Finding the best cryptocurrency lawyer for you might be a difficult task. This guide is intended to outline the main reasons why and when you might need one. If you have any questions at all feel free to leave a comment below or contact us here. Want to learn more about Bitcoin and other cryptocurrencies? Check out our Homepage for more information!