Question about Crypto Taxes

So, if your crypto exchange takes out taxes every time you withdraw, does that mean you're all set with the government? Or do you still need to file a separate tax return for the income you made from crypto?

the rules in my country state that cryptocurrency is part of personal income, so when someone makes a withdrawal or trades on an exchange, it will be taxed, and then at the end of each year it will be automatically attached to the individual's tax report, it makes it easier for people since they no longer need to report separate taxes on their crypto income. but this rule only applies to exchanges regulated by the government, if you trade on an exchange outside of what the government recommends such as binance, okx, etc., then it does not apply, and you will be tax-free on those trades.

Wow, this is my first time to hear about this. Are you sure that the exchange they deduct is for taxes or just maybe a withdrawal fee? This is kinda new to me, because for sure if this happened for sure that the cryptocurrency exchange that does this must be coordinated with the government always if they do like this. And I believe just ever this is happening right now, I believe it is exist in only some local cryptocurrency exchange in some countries?

AFAIK you don't have to pay anything, but you have to file the tax to your tax authority, just because the exchange have deduct your tax, it doesn't mean you have no obligation to report all of your annual income. Yeah it only exist in local exchanges, the tax for international exchanges is different, so it's kinda hard for international exchanges to calculate and deduct the tax automatically because they have to follow the updated tax regulation from every countries.

I think the OP needs to read the T&c's from the exchange. I would expect that the exchange are collecting taxes on behalf of each member to furnish to the government. I dont know why an exchange would get involved with collecting taxes if the government hasnt ordered it. AFAIK it doesnt happen in Europe, everyone is required to make their own declaration which makes more sense. Just because anyone makes a withdrawal from an exchange it doesnt necessarily mean they have made a profit and taxes are usually collected on profits.

I didn't know that centralized exchanges deduct taxes on their users in withdrawals. They deduct withdrawal fee that includes not only on-chain transaction fee, but other fees more than withdrawal fee like wallet maintenance, platform maintenance and more, but at least there is no tax included. I didn't know about it but it truly exists, but complicated. Crypto fees are often tax deductible, but pretty complicated. Some other sources show that there is tax deduction in your fee on exchanges.

because some countries have a non-taxable allowance and variable % depending on circumstance, exchanges shouldnt just subtract tax at source as they have no clue of your other gains/losses/incomes from other sources to calculate a fair tax you should self asses at the end of the financial year and pay then your taxes

I’m not sure if there’s an exchange that does this because, when they act as a withholding agent, they’re required to remit the taxes to the IRS (if in the US). In return, the exchange must provide a certificate of withholding tax as proof that it was properly remitted. On your end, you wouldn’t need to file for income tax separately, but if you’re ever investigated, you’d just need to show the certificate from the exchange to prove you’re not liable for additional taxes.

We have to do our own capital gains tax submissions. Exchanges do not automatically deduct taxes from us here. Crypto has been regulated so much now that you can’t get away with no filing your taxes. Back in the day you could get away with a certain amount but I just wouldn’t risk it now. The Man wants his cut sadly.

It actually depends on a couple of factors and that is because taxation rules differ  from country to country and also across regions too. Some countries actually have a more strict set of taxation policies and regulations compared to others and that simply means that in some countries taxation is taken more seriously than others and aside frome that taxation rates can differ too.   But for most cases if your exchange charges you for taxation fees based on government policies then there is no need to go out of your way paying extra tax. I think that is part of the reason why a majority of things done on CEX incurre some fees most of the time

For me, this automation when it comes to taxes doesn't really make sense, because there are a lot of factors that can't be automatically calculated or added/subtracted. For all ambiguities regarding the payment of taxes, it is best to consult with tax advisors and familiarize yourself with the laws that regulate it. For those who do not invest too much money, it is best to avoid CEXs and use alternatives like DEX - and if you want to convert crypto to fiat, there are always virtual cards or direct payment with cryptocurrencies. I'm not saying that you don't need to pay taxes, but if you live in a corrupt country, I think it's better to keep that money for yourself, than to give it to corrupt politicians.

It does cover my tax obligation to the government. Whenever I withdraw my money, and I'm also paying VAT + Income tax deducted automatically from my balance. I do like this automation by my local exchange site instead of reporting it manually.

Only businesses are required to file tax returns to the government in my country. Civil servants' tax is deducted automatically from their salaries but they will have to pay fike tax returns for any business they run. Crypto withdrawals are taxed through exchanges and they are not expected to pay any tax or fine any tax returns after such deductions. These exchanges remit the collected tax to the government based on stipulated agreement.

Yes it covers the government tax and there should be no new separate charges for the transaction. I don't know what you experienced in your centralized exchange transaction tax fee. In my country, before there was no extra charges when selling, converting and withdrawing but now there is in all the centralized exchanges and we pay whenever we did transactions. If I am making a transaction of 0.0017 to the exchange, the 0.0017 will appear there in the exchange and when i am selling, i will only sell 0.0016.2 or some fraction after the decimal point.

I don’t see exchanges charging separately for the tax to be paid to the government for owing crypto assets. Including the withdrawal fees that are been charged for any withdrawal, it should also cover for the taxes the government will collect from them. The government won’t as an entity taking money separately from you after your crypto exchange is already charging you for that, they rather take from the exchange for owning and operating in the country and that should cover for your tax also. This could just be how traditional banks works, as the government don’t just deduct money from your account as owning a certain amount of money in the bank. They collect from you through the bank.

I think it depends on the country's laws. If the government is taking the taxes from a withdrawal, then it's normal to do that, but if you have to file separate taxes on your own, the exchange has no right to take the form of a withdrawal. In my country, the government taxes the exchanges and the exchanges in turn increase their fees and include VAT in their fees. The inconsistency in this is that not everybody uses exchange and people who do not use exchanges won't be taxed.

I think it really depends on the country you live in. If the exchanges automatically deducts the taxes, which is the capital gain at the end, theoretically you are not required to pay anything else but probably you are still required to declare it as income or something like that because it could play a difference in the tax brackets you are in.

Yes the government now requires taxes for crypto trading including buying/selling it will be deducted from the maker/take fee plus taxes. So the local exchange has taken care of everything so there is no need to file taxes separately because that is what the regulations apply now after taxes in my country were raised.

I'm sorry but which exchange is it and in which country is this happening. I've only seen it on regulated casinos, it's something I've experienced myself as well. If what you've said is true, you don't have to pay any taxes or declare anything else, as they've already been deducted. Keep the topic updated, several other users have already asked for the name of the exchange and your country of residence but the OP hasn't replied back. More information is necessary, even though you're better of asking someone more knowledgeable, not random people on the forum.

If this is a hypothetical scenario, it would depend on the tax framework of a particular country as not every place would work exactly the same. For instance, if by any chance exchanges are mandated to deduct tax/es from residents of a particular country, we still have to know what sort of tax this is. Because it could be something else like a VAT hence, residents would still have to declare other taxes like income, etc. I'd be interested too if this question is based off a real country.