I will use a very specific answer. Lets say I bought NXT when it was very low. It has now gone up. So on the NXT exchange through the client I exchange the NXT for Ardor. Do I need to pay taxes on this exchange? Or do I pay the taxes when I actually turn the Ardor into USD? I am in the US. If I would need to pay taxes now then how would I even go about something like that since even tax guys don't understand this?
This is pretty obvious concern because accounts professionals don't know about Cryptocurrencies and crypto professionals don't know about accounting stuff, so both lack answers.
Well in your case. You can freely exchange cryptocurrencies (NXT to ARDR here) without any worry of taxes. Government can't in the hell spy your exchange account no matter how much profit you made. But yes when you exchange ARDR to USD and withdraw it to bank, tax authority may throw torch light on your face and inquire about sudden surge in balance. Best is to show your cryptocurrency income as profitable income from stock/shares in your tax return and pay considerable tax then to worry later.
Well, governments can ask exchanges about their records, and if you use your real data, they can find out about your trades. For example, to register in bittrex, you need to give your real name, place of birth etc, and they check against public records, so you cant enter fake names.
In any case, always pay your taxes, and try to keep track of your trades, even if you shoud only pay capital gain increase tax once you sell for USD, but what if they ask where the money came from? you are going to be able to give an explaination.. so save your trades.
I lost my trades in Mintpal because the exchange is dead and now I dont have these trades so im a bit worried about that in case they ask.. but how would they even check? they trace the bitcoin addresses? how thy know if it belongs to an exchange or not?
Honestly this is so new that it becomes so confusing.
