Everything About The Digital Nomad Lifestyle Sounds Great, Except The US Tax System

If you’re a U.S. citizen, regardless of where you reside and how much time you’ve spent in another country, you still owe taxes on crypto capital gains.Getty

</div> </div> <p>I’ve worked with a group of about 50 freelancers in the crypto community over the past few years.</p> <p><span style="font-weight: 400">They’ve come from all over the world, and most of them have been getting their paychecks in bitcoin, as well as some 10 to 20 different cryptocurrencies. The digital nomad lifestyle many of them live is attractive, but it also has its fair share of headaches—especially when it comes to paying taxes.</span></p> <p><span style="font-weight: 400">For example, if you were to&nbsp;contribute to Decred—an autonomous digital currency—then you’d get paid in Decred (DCR). But that doesn’t necessarily mean you have a good sense of what to do with that payment next. Do you liquidate into fiat and pay your rent with it, or do you trade in that Decred for bitcoin on an exchange? And most pressingly, how will that affect your potential tax liability? </span></p> <p><span style="font-weight: 400">At the moment, there aren’t any clear answers to those questions, which is stifling innovation and keeping people from relying on cryptocurrencies in a meaningful way. Instead, people are continuing to use them as a speculative investment. </span></p> <p> </p> <p><span style="font-weight: 400">In order to have widespread adoption of crypto, there needs to be more clarity and simplicity when it comes to tax laws and regulations in the U.S. </span></p> <p><span style="font-weight: 400">Here’s why it’s time to follow the lead of </span><a href="https://cointelegraph.com/news/here-s-what-you-pay-in-taxes-for-using-crypto-from-the-us-to-switzerland" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://cointelegraph.com/news/here-s-what-you-pay-in-taxes-for-using-crypto-from-the-us-to-switzerland"><span style="font-weight: 400" data-ga-track="ExternalLink:https://cointelegraph.com/news/here-s-what-you-pay-in-taxes-for-using-crypto-from-the-us-to-switzerland">more forward-thinking nations</span></a><span style="font-weight: 400"> and start figuring out an intelligent way to integrate crypto into&nbsp;the U.S tax system:</span></p> <p><b>If you’re working outside of the U.S. as a citizen, you still owe taxes back to the United States. </b></p> <p><span style="font-weight: 400">If you’re a U.S. citizen, regardless of where you reside and how much time you’ve spent in another country, you still owe taxes on crypto capital gains. </span></p>

<p><span style="font-weight: 400">That sets up a difficult dynamic for a few different reasons. For one thing, if you’re being paid in crypto, that’s technically your income. However, if the price of your coins fluctuates wildly, and you’ve realized gains when you liquidate, that money will be taxed as </span><a href="https://www.bankrate.com/investing/long-term-capital-gains-tax/" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.bankrate.com/investing/long-term-capital-gains-tax/"><span style="font-weight: 400" data-ga-track="ExternalLink:https://www.bankrate.com/investing/long-term-capital-gains-tax/">capital gains</span></a><span style="font-weight: 400">. On top of that, if you’ve held them for less than a year, they’ll be treated as short term capital gains—which are taxed at a higher rate. </span></p> <p><span style="font-weight: 400">Additionally, each transaction (no matter how small) is taxable. Because cryptocurrency is viewed as property by the IRS, it doesn’t enjoy </span><a href="https://coincenter.org/entry/bitcoin-taxation-is-broken-here-s-how-to-fix-it" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://coincenter.org/entry/bitcoin-taxation-is-broken-here-s-how-to-fix-it"><span style="font-weight: 400" data-ga-track="ExternalLink:https://coincenter.org/entry/bitcoin-taxation-is-broken-here-s-how-to-fix-it">a </span><i data-ga-track="ExternalLink:https://coincenter.org/entry/bitcoin-taxation-is-broken-here-s-how-to-fix-it"><span style="font-weight: 400" data-ga-track="ExternalLink:https://coincenter.org/entry/bitcoin-taxation-is-broken-here-s-how-to-fix-it">de minimis </span></i><span style="font-weight: 400" data-ga-track="ExternalLink:https://coincenter.org/entry/bitcoin-taxation-is-broken-here-s-how-to-fix-it">exemption</span></a><span style="font-weight: 400">—meaning there is no amount small enough to avoid the capital gains tax. So, every time you get paid in crypto, you have to keep track of your “gains” for tax season.</span></p> <p><span style="font-weight: 400">From a digital nomad’s perspective, this is all ridiculously complex. Nomads </span><a href="https://hackernoon.com/why-gamers-and-blockchain-are-creating-the-future-of-work-and-society-38c2ae6787ee" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://hackernoon.com/why-gamers-and-blockchain-are-creating-the-future-of-work-and-society-38c2ae6787ee"><span style="font-weight: 400" data-ga-track="ExternalLink:https://hackernoon.com/why-gamers-and-blockchain-are-creating-the-future-of-work-and-society-38c2ae6787ee">work and live</span></a><span style="font-weight: 400"> in multiple different countries throughout the year, operating under a bevy of tax jurisdictions. Add to that the difficulty of juggling potentially dozens of cryptocurrencies along with fiat currency, and it’s easy to see what a headache tax time can be.</span></p> <p><b>The crypto tax implications and regulations lack clarity. </b></p> <p><span style="font-weight: 400">Emerging technology is so modern and can do so much to facilitate frictionless crypto transactions, but the lack of clarity around regulations is holding people back from using it. </span></p> <p><span style="font-weight: 400">Even if it becomes incredibly easy to use, like tapping an icon or taking a picture of a QR code, the tax and regulatory space will still be complex. Which means work needs to be done not only on building the infrastructure for this technology, but also on making sure people understand and can easily navigate regulations and tax laws.</span></p> <p><span style="font-weight: 400">Fortunately, people</span><i><span style="font-weight: 400"> are</span></i><span style="font-weight: 400"> beginning to work on these issues. Coinbase recently announced </span><a href="https://www.coindesk.com/coinbase-integrates-turbotax-to-help-us-clients-file-crypto-taxes" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.coindesk.com/coinbase-integrates-turbotax-to-help-us-clients-file-crypto-taxes"><span style="font-weight: 400" data-ga-track="ExternalLink:https://www.coindesk.com/coinbase-integrates-turbotax-to-help-us-clients-file-crypto-taxes">a partnership with TurboTax</span></a><span style="font-weight: 400"> which will allow users of TurboTax Premier to upload up to 100 cryptocurrency transactions at once. Having a well-known business enter the game on behalf of crypto users is a huge step forward—and it will give people some much-needed help in dealing with their taxes this year. Additionally, Coinbase is integrating with Cointracker, making it easier for users to aggregate all the transactions that they’ll need to upload for tax purposes.</span></p> <p>This push to make tax season easier for crypto users has to continue if the U.S. wants to see widespread adoption. Because it’s not just about handing someone a crypto wallet or making it easy to exchange currency in a peer-to-peer payment. It’s about ensuring they can do that without getting hammered by a massive tax bill come April.</p> <p><b>This lack of insight is preventing people from working, living and paying in a distributed, decentralized way.</b></p> <p><span style="font-weight: 400">The uncertainty of where Americans stand when it comes to crypto, regulations and taxes is having a chilling effect on people’s willingness to experiment with the technology. </span></p> <p><span style="font-weight: 400">From a personal standpoint, I’ve been wanting to take a year or so to travel using cryptocurrency. What’s been holding me back is the sense that I don’t really understand the tax implications of that as a U.S. citizen. It’s already fairly complex to work and live abroad for a year when you’re being paid in fiat currency. Throw crypto into the mix and you’ve added a new, overwhelming layer of intricacy. </span></p> <p><span style="font-weight: 400">Five years ago, this wasn’t an issue. </span><a href="https://www.forbes.com/sites/samantharadocchia/2018/12/14/4-crypto-mistakes-to-avoid-when-starting-out/" target="_self" data-ga-track="InternalLink:https://www.forbes.com/sites/samantharadocchia/2018/12/14/4-crypto-mistakes-to-avoid-when-starting-out/"><span style="font-weight: 400" data-ga-track="InternalLink:https://www.forbes.com/sites/samantharadocchia/2018/12/14/4-crypto-mistakes-to-avoid-when-starting-out/">The crypto space</span></a><span style="font-weight: 400"> was the Wild West and people were living off these currencies because they truly weren’t being traced. Now, Coinbase is required to share all their customers’ details with the U.S. government. And while people say your public keys and wallet can’t be attached to your identity, they can be. It’s not the same environment as it was&nbsp;a few years ago. </span></p> <p><span style="font-weight: 400">On the bright side,&nbsp;the industry is seeing infrastructure like the Lightning Network begin to take shape. Crypto holders will be able to have close to zero fee transfers and payments that can be accomplished quickly and easily. </span></p> <p><span style="font-weight: 400">What people still need is clarity around regulations and tax laws and tools to easily track and manage tax burdens. Otherwise,&nbsp;people in the U.S. will never see the mentality around cryptocurrencies change from “I’m just buying this to speculate,” to “I’m using this to pay my bills because it’s simple and I trust its value.”</span></p>”>

If you’re a U.S. citizen, regardless of where you reside and how much time you’ve spent in another country, you still owe taxes on crypto capital gains.Getty

I’ve worked with a group of about 50 freelancers in the crypto community over the past few years.

They’ve come from all over the world, and most of them have been getting their paychecks in bitcoin, as well as some 10 to 20 different cryptocurrencies. The digital nomad lifestyle many of them live is attractive, but it also has its fair share of headaches—especially when it comes to paying taxes.

For example, if you were to contribute to Decred—an autonomous digital currency—then you’d get paid in Decred (DCR). But that doesn’t necessarily mean you have a good sense of what to do with that payment next. Do you liquidate into fiat and pay your rent with it, or do you trade in that Decred for bitcoin on an exchange? And most pressingly, how will that affect your potential tax liability?

At the moment, there aren’t any clear answers to those questions, which is stifling innovation and keeping people from relying on cryptocurrencies in a meaningful way. Instead, people are continuing to use them as a speculative investment.

In order to have widespread adoption of crypto, there needs to be more clarity and simplicity when it comes to tax laws and regulations in the U.S.

Here’s why it’s time to follow the lead of more forward-thinking nations and start figuring out an intelligent way to integrate crypto into the U.S tax system:

If you’re working outside of the U.S. as a citizen, you still owe taxes back to the United States.

If you’re a U.S. citizen, regardless of where you reside and how much time you’ve spent in another country, you still owe taxes on crypto capital gains.

That sets up a difficult dynamic for a few different reasons. For one thing, if you’re being paid in crypto, that’s technically your income. However, if the price of your coins fluctuates wildly, and you’ve realized gains when you liquidate, that money will be taxed as capital gains. On top of that, if you’ve held them for less than a year, they’ll be treated as short term capital gains—which are taxed at a higher rate.

Additionally, each transaction (no matter how small) is taxable. Because cryptocurrency is viewed as property by the IRS, it doesn’t enjoy a de minimis exemption—meaning there is no amount small enough to avoid the capital gains tax. So, every time you get paid in crypto, you have to keep track of your “gains” for tax season.

From a digital nomad’s perspective, this is all ridiculously complex. Nomads work and live in multiple different countries throughout the year, operating under a bevy of tax jurisdictions. Add to that the difficulty of juggling potentially dozens of cryptocurrencies along with fiat currency, and it’s easy to see what a headache tax time can be.

The crypto tax implications and regulations lack clarity.

Emerging technology is so modern and can do so much to facilitate frictionless crypto transactions, but the lack of clarity around regulations is holding people back from using it.

Even if it becomes incredibly easy to use, like tapping an icon or taking a picture of a QR code, the tax and regulatory space will still be complex. Which means work needs to be done not only on building the infrastructure for this technology, but also on making sure people understand and can easily navigate regulations and tax laws.

Fortunately, people are beginning to work on these issues. Coinbase recently announced a partnership with TurboTax which will allow users of TurboTax Premier to upload up to 100 cryptocurrency transactions at once. Having a well-known business enter the game on behalf of crypto users is a huge step forward—and it will give people some much-needed help in dealing with their taxes this year. Additionally, Coinbase is integrating with Cointracker, making it easier for users to aggregate all the transactions that they’ll need to upload for tax purposes.

This push to make tax season easier for crypto users has to continue if the U.S. wants to see widespread adoption. Because it’s not just about handing someone a crypto wallet or making it easy to exchange currency in a peer-to-peer payment. It’s about ensuring they can do that without getting hammered by a massive tax bill come April.

This lack of insight is preventing people from working, living and paying in a distributed, decentralized way.

The uncertainty of where Americans stand when it comes to crypto, regulations and taxes is having a chilling effect on people’s willingness to experiment with the technology.

From a personal standpoint, I’ve been wanting to take a year or so to travel using cryptocurrency. What’s been holding me back is the sense that I don’t really understand the tax implications of that as a U.S. citizen. It’s already fairly complex to work and live abroad for a year when you’re being paid in fiat currency. Throw crypto into the mix and you’ve added a new, overwhelming layer of intricacy.

Five years ago, this wasn’t an issue. The crypto space was the Wild West and people were living off these currencies because they truly weren’t being traced. Now, Coinbase is required to share all their customers’ details with the U.S. government. And while people say your public keys and wallet can’t be attached to your identity, they can be. It’s not the same environment as it was a few years ago.

On the bright side, the industry is seeing infrastructure like the Lightning Network begin to take shape. Crypto holders will be able to have close to zero fee transfers and payments that can be accomplished quickly and easily.

What people still need is clarity around regulations and tax laws and tools to easily track and manage tax burdens. Otherwise, people in the U.S. will never see the mentality around cryptocurrencies change from “I’m just buying this to speculate,” to “I’m using this to pay my bills because it’s simple and I trust its value.”

Crypto Destroyer

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