Do you get paid in cryptocurrency? How it will be taxed and how to manage crypto risk
As the specter of recession looms, American companies are becoming more cautious about increasing the number of employees in their organizations. But since the work still needs to be done, according to a Bloomberg study, more than 75 percent of American businesses prefer to hire freelancers during the economic uncertainty.
According to a recent survey conducted by Humans.net – a US-based company – about a third of freelancers want their payments in cryptocurrency. Some, the whole package and some, part of the salary package.
“With over 75 percent of businesses in the US alone looking to hire freelancers, the global demand for freelancers is only expected to increase in the coming years. Of these freelancers, one in three want to be paid in crypto, especially as crypto prices have fallen – some which makes the current market situation an opportune time to invest in digital assets. Businesses are happy to commit and deliver their payments in cryptocurrency, especially in an effort to attract younger talent,” said Slava Demchuk, CEO of a UK- based anti-money laundering service AMLBot and the first crypto wallet with the AML module AMLSafe.
“Many hard working people are turning to freelancing to make extra money just to get by while inflation rates continue to rise. What is devastating is how vulnerable these people are to being scammed out of their earnings because they are unaware of the dangers of not validating the payer’s wallet, he added.
So, if you are looking for freelance jobs in international companies, you can also get paid in cryptocurrencies and will also face the associated risks.
Although cryptocurrencies are a mode of fast and hassle-free international payments with no hidden commission and no need to worry about exchange rates among other benefits, the alarming growth of “dirty” crypto creates a dilemma for freelancers.
“Around 40 percent of BTC transactions are illegal. If you’re a freelancer, receiving dirty crypto can put you at risk and get your account banned,” Demchuk said.
So apart from facing the fluctuations of crypto values on the trading platforms, you need to manage the crypto risk to protect your fund.
“A payer may seem trustworthy at face value, but a freelancer can easily get ripped off without time to validate their wallet. All you can see is the crypto payment in your account. But the process behind each transaction involves a complex verification process, and the network can block the wallet yours if they detect too many suspicious transactions, Demchuk said.
“Anyone can unknowingly receive illegal funds, such as drug money, into their account and not even know it. Everything seems to be going well at first until their accounts are frozen or banned without explanation. So even if you completely trust the person who pay you, they can unknowingly put you at risk. The only way to protect yourself is to validate every transaction or wallet using a dedicated service – that’s basic crypto hygiene,” he added.
According to Demchuk, you can manage the risk in the following ways:
Dirty crypto can come from a variety of sources, such as:
- cryptohacking attack or “cryptojacking”
- criminal activities such as money laundering, fraud, ransom or fraud
- unregulated exchanges and black market transactions
Top tips on how to protect yourself from crypto rip-offs:
- Check incoming transactions: Check the sender’s wallet and every incoming transaction to ensure they are legitimate. Before receiving the payment, use anti-money laundering services to ensure it comes from a trusted source.
- Choose a secure crypto wallet: Consider security features such as multi-signature authentication, two-factor authentication (2FA) and built-in AML screening capabilities.
- Choose a safe crypto exchange: Trade crypto only on exchanges that require Know Your Customer (KYC) verification.
- Consider having multiple wallets: Create one for your trusted contacts and another for high-risk or unknown contacts. This will help you keep your funds safe and secure and minimize your risk in case you receive dirty crypto on one of your wallets.
Already received dirty crypto. What do I do now?
- Inform the payer: It is possible that they are not aware of the origin of their money.
- Never receive other transactions from the same wallet: This is a no-brainer. There is a higher risk of being scammed if you keep receiving payments from the same source.
- Triple check all future transactions: Be extra vigilant when handling future payments. While you might get away with receiving a dirty crypto payment, the more unusual or suspicious activity on your account, the more likely you are to get caught or banned.
- Try to dispute: If your account was banned or blocked by an exchange, you can try to dispute the decision if you can prove that no fraudulent activity took place.
- Ask for professional help: Seek help from companies that offer crypto dispute resolution services and research – but do your best not to get into this situation in the first place.
“If you suspect that you have received “dirty crypto”, take immediate action to protect yourself and your money. First inform the payer that they may have been scammed and ask them to stop sending any more payments. If your account is banned or blocked, you can appeal if you can show that no illegal activity has occurred. Seek professional help from companies that offer crypto dispute resolution and investigations, if necessary. Moving forward, be extra careful when handling future payments and triple-check all transactions for suspicious activity, said Demchuk.
Tax
Since there is no clear status of cyrptocurrencies in India, so are the tax rules.
So if a person gets paid for their work in crypto, will it be treated as his/her income or investment for tax purposes? And how should it be taxed?
“Tax legislation around cryptocurrency can vary depending on the country. For example, US taxpayers must report all crypto sales, conversions, payments and earnings to both the IRS and state tax authorities (if applicable), but each action has different tax implications,” said Demchuk.
“Receiving payment in cryptocurrency, exchanging goods or services for cryptocurrency, mining cryptocurrency or earning rewards from efforts is considered taxable income. Since these are considered “earned” income, they are subject to both federal and state taxes. As such, you must record the value of the crypto in US dollars when you received it and include it as part of your gross income on your tax return, he added.
Regarding the US tax rules, Demchuk said: “Selling cryptocurrencies for cash, converting one cryptocurrency to another and spending crypto on goods or services are all capital gains. Depending on your tax bracket, they are taxed at zero percent, 15 percent or 20 percent.” »
“But there are also non-taxable events, such as buying crypto using cash and holding it, donating crypto to a charity or non-profit, receiving or giving a gift, or moving crypto from one wallet or account to another like your own,” he added.
“The rules are comparable across many countries, but a few do not tax crypto profits – or only partially. For example, these include Singapore and Switzerland, where capital gains tax is not applicable, or Germany for assets held for more than a year, Demchuk further said.
But in India, with the Reserve Bank of India in no mood to give crypto any recognition, because now the payment you get in cryptocurrencies will not be treated as income.
But you have to pay tax when you redeem the currency to convert it into rupees for your spending. At this point, a question may be raised about the sources of your cryptocurrencies.
In case the incidences of payments for freelancing in cryptocurrencies increase, the authorities will not let it go untaxed and may come up with some regulations to tax the income as well.
