Many are doing it wrong: How to avoid tax penalties with Cardano

The Cryptocurrencies had been kept out of tax returns, but this situation has changed. In the case of the European Union, new regulations for digital assets have been approved. It is considered that the Cryptocurrencies are a heritage, which is why it must be declared on the tax return. 

But What type of assets are cryptocurrencies? Sometimes, cryptocurrencies are like money: they're used for payments just like fiat money, but since they're not backed by a central bank, they're treated differently. Additionally, cryptocurrencies function as a purchased good, like a product, so they have several tax classifications.

Another issue is that There are several types of cryptocurrenciesThere are the more conventional cryptos, such as Bitcoin or Ethereum, whose value depends on supply and demand. Also, there are the called stablecoins: Its price is not volatile and is anchored to an asset (fiat money reserves, precious metals or other cryptocurrencies). 

Are all cryptocurrencies declared the same? For example, it's difficult to make a declaration when a digital currency's price fluctuates widely, as the price is uncertain. In that case, you need to be careful: making mistakes on your tax return entails penalties and fines. These mistakes must be avoided!

The case of Cardano and its cryptocurrency Ada

Cardano is not a cryptocurrency, but an open-source blockchain.. Also, it is a platform that allows you to carry out smart contracts, while managing its own digital currency called Ada. The Cardano network was created during 2015 and one of its founders is one of the initial members of EthereumCardano has gained significant acceptance because it uses a blockchain where cryptocurrency users participate, achieving consensus and avoiding excessive energy expenditure. Therefore, it is considered an environmentally friendly alternative to Bitcoin.

Today Cardano Ada token price, is located at €0,687 and is widely used in Europe. This is how it has become a digital currency that must be declared, which must be handled with care. This crypto uses a network with “proof of stake”, which is very different from BTC. Widely used for transaction record layers, when declaring any movement with Cardano, both its smart contracts, such as the use of its cryptocurrency called Ada.

The first thing is that the Ada token must participate in tax registrations. But with one detail: It is only declared if it is used to acquire or exchange, it is not declared when it is purchasedAnother issue is that it's typically used only on Cardano, so this blockchain is now audited. Owning this cryptocurrency is like owning a good, an object for which you pay. However, it generates taxes in two circumstances: if it's used to purchase or exchange cryptocurrency, or to pay for a service or product.

Avoid tax penalties if you use Cardano

Both the Cardano network and blockchain are quite popular. Firstly, the Smart contracts made with Cardano must be participated in tax returns, Since every contract involves an increase or decrease in personal assets, which is used to calculate taxes. That is, Cardano is similar to a “society”, as it's a collaborative blockchain with consensus among its users. Companies with economic purposes always file taxes.

• Regarding Ada token, declared and taxedYou only pay taxes if this cryptocurrency is used to: 1) purchase goods or services and 2) exchange it for other cryptocurrencies.
• In case of using the Ada token for making purchases, its value in Euros is used to make declarationsIn this case, the token is declared in a manner analogous to fiat money.
• If the Ada token is used to buy other cryptos, then the value of the new cryptocurrencies is declared, converted to euros.
• You have to be careful with the Cardano smart contracts. They are peer-to-peer transactions, known only to the two parties. Everything is deduced within the blockchain itself on which the smart contract operates. So the rules apply to them same regulations that conventional contracts imply.
• It is mandatory to declare the type of exchange that takes place in Cardano smart contractsIf fiat currency, bank transfers, cryptocurrencies, or exchanges of goods are involved, all of these must be transcribed in their euro value, along with the contract description.
• If you own the Ada cryptocurrency, you must declare changes in its value. But on the Cardano network, the cryptocurrency's value is quite stable, as this network uses a token burning strategy to regulate the cryptocurrency's valuation.

What are the penalties for not declaring cryptocurrencies?

The Fines amount to more than 20 thousand eurosA lot of money! But in the case of smart contracts, the fines are different, as they adhere to the regulations for traditional contracts. So Cardano involves several ways of reporting: as a cryptocurrency with the Ada token, as contracts, and as a crypto exchange. At the same time, it must be considered that You pay to use the Cardano network, as a service, and the use of digital services is also subject to tax.

It remains to be said that Cardano proves that the world of cryptocurrencies is becoming more complete.They are not simple digital currencies as many people imagine. They are embedded in a network of services that can involve the use of smart contracts, while sometimes functioning as an acquired good, or as digital capital used for transactions. All of this must be considered when filing a tax return that involves cryptocurrencies and blockchain.