As questions around Celsius restructuring and fund recovery continue, investors continue to express their worries about tax. Following its fall a few months ago, Celsius has constantly been fighting legal suits unlikely to end soon. However, many Celsius investors are increasingly concerned about their tax situation amid the court battles.
Why Pay Taxes for Assets I Do Not Own?
On Reddit, a user called u/jml3837 posed a question about Celsius and taxes. He asked:
“Why did I have to pay capital gains taxes on crypto that I did not own?”
The Redditor showed concern about his tax liability associated with Celsius amounts. He argues that when signing up, the terms of service dictate that any amount deposited automatically becomes the property of Celsius for the period locked. Hence, the cryptocurrency owner should take responsibility for the capital gain taxes.
The Celsius situation is causing severe confusion among investors, mainly because they don’t own the tokens. But a point to note, once an investor earns interest, they should declare it as income and pay taxes accordingly.
Income Tax for Interest Earned
Note that Celsius has an earn feature where investors can get interests for crypto deposited. The investor mentioned above notes that he has paid thousands in income tax in the past years’ interests earned in Celsius’ ‘Earn’ feature. However, he had not withdrawn his interest.
The user even said;
“I paid thousands in taxes over the years from my interest gained in my earn account… Technically, I owe the IRS a couple thousand this year on interest I will never see and can’t access.”
The investors are complaining about having paid income tax for interests (income) they never actually received. So, what if the investors lost the funds like in the case of Celsius earn? Should they highlight the tax/interest as a loss? That question about the tax paid on interest stuck on Celsius’ ‘earn’ features is a severe problem for investors.
Do We Write of Funds Stuck on Celsius?
“I don’t want to, but if this Celsius situation doesn’t get resolved by tax time., do we write it off somehow? Any tax advice on reporting a loss?”
Many Celsius investors don’t know how to deal with the money stuck in Celsius. Some ask if they should record the cash in Celsius as a loss for tax purposes.
The general consensus in the taxing world is that you don’t pay taxes on losses. In some jurisdictions, your losses can help offset your tax liability. In a capital tax situation, any losses in the value of your assets are recorded as a capital loss, hence can help reduce the capital gain taxes.
However, the situation with Celsius and the stuck funds is quite different. The investors are still trying to recover their assets. However, since it’s unlikely, investors feel like they should treat their amounts as capital losses.
Taxing Structure For Celsius Investors
Investors need to get some clarity about the taxing structure in a country. However, we can highlight what crypto investors should know about the taxing standard of crypto and the interest associated with Celsius.
In most jurisdictions, the amount of interest earned is an income. The persons who earned such interests via the earn feature must pay income tax for the particular duration.
If you received the interest in the form of crypto, the change in value from the time you received the tokens to the time you disposed them is eligible for capital gain taxes. However, since many have questions about ownership, it’s vital to contact accountants and tax attorneys.
Final Word: Contact Accountants
So, what can these investors do to find the best solutions for their problems? A Redditor mentioned above jokingly mentioned that they could wait for Celsius to give directions. However, that is a bad idea.
Since the network’s troubles began, Celsius has not communicated actively with their customers. Furthermore, there are fraud accusations against them. It does not make sense to trust the word of a person who defrauded you.
Investors should seek advice from certified public accountants or tax attorneys. Accountants and tax attorneys have relevant experience in dealing with complicated matters. They understand the taxing laws better than anyone. Therefore, contacting them can help avoid tax mistakes and get solutions immediately.