Compared to its historical level reached in November 2021, bitcoin (BTC) is currently down 36%. This situation worries investors. However, there is another problem that could be even more worrying: the payment of capital gains tax. Indeed, in a few countries, users of digital financial assets have to pay taxes. But there are solutions that save money. One of these techniques is known as HIFO.
A handy trick used by a few people
HIFO is a method that few people know about. Yet, according to professionals, it remains one of the most effective on the market.
When a person sells cryptocurrencies, in principle, he can choose a specific unit. For example, for a holder of a cryptocurrency stock, it is possible to choose the most expensive BTC and then determine his tax liability. For this, it is important to have a rigorous accounting, especially since there are not yet precise rules regarding taxes on BTC.
Some people do not have a detailed record of the various transactions they make and the price at which they trade their BTC stock. Instead, they use software designed to create trades based on whatever price they want. HIFO is one of the software used for this purpose.
Concretely, when a cryptocurrency user makes his transactions without recording them in this software, accounting does not reliably reflect business transactions carried out. As a result, the calculations made by the IRS to determine the amount of capital gains taxes are not always accurate. “A lot of people now use this kind of software, which makes this kind of accounting super easy,” notes Shehan Chandrasekera, an expert in the field.
Save money on transaction reporting
The purpose of people who use cryptocurrencies, but want to save money is summed up very well by Chandrasekera. He declares : “You want to look as poor as possible.” Indeed, by proceeding in this way, it becomes possible to pay only a small amount of tax.
For example, say a taxpayer acquires BTC for $10,000. He then sells them for $50,000. He then realizes a gain of 40,000 dollars which he must normally declare. But there is a problem. If he had previously recorded business transactions with a loss of $40,000, the software considers that he simply offset his tax. As a result, this person does not pay all of his tax.
It is true that the technique of incomplete accounting is not yet known to everyone. However, the fact remains that it is applied by several people. According to Chandrasekera, some people use it on a weekly basis, while others do it on a quarterly basis.
Unless very precise and defined rules are established, it will be difficult for the authorities to follow the transactions made by cryptocurrency users. Indeed, they have a multitude of techniques and tools with which they can hide commercial operations.
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Behind the generic signature “TCT Writing” are young journalists and authors with specific profiles who wish to remain anonymous because they are involved in the ecosystem with certain obligations.