A recent poll on Twitter held amongst more than 7,500 people showed the abrogating reaction of the majority when asked about the way they handled their taxes associated with crypto investing and trading. Only a fifth of the participants revealed that their taxes are already filed and paid.
Catch Me If You Can
A cryptocurrency taxes poll posted on Twitter on April 1st quickly caught up to speed with more than 7,500 people already taking part.
https://twitter.com/twobitidiot/status/980503618859257857
Despite the stipulations of the first and only guidance issued by the IRS on cryptocurrency taxation, people are clearly disregarding regulations, relying on the fact that the agency will simply ignore or fail to identify any misconduct.
Over 16 million Americans are already proud owners of cryptocurrency, and an estimated 20% of students have used their school loans to invest in cryptocurrency. With the increasing number of people getting involved in the field, one can see how this could become an issue.
What Does the Law Say?
In the aforementioned guidance, the IRS has clearly stated that instead as currency, it shall treat cryptocurrency as property for the purpose of taxation. Furthermore, the term ‘cryptocurrency,’ according to stipulations, includes anything which is considered to be a ‘convertible virtual currency’ having an equivalent in real currency or it acts as a substitute of the same.
It’s true that not all cryptocurrencies are acting this way. However, the majority of the leading ones, including Bitcoin, do.
And since ‘it is all we have to go on,’ in the words of tax attorney Sarah-Jane Morin, referring to the guidance, it might be a good idea to have a quick look at a few things you should be aware of when it comes to your cryptocurrency taxes.
Save Your Trading Logs
Just as you don’t want to be worried looking for a reportable receipt, you don’t want to have to go through hundreds of trades to find the one that’s giving you headaches.
“Going forward, it would probably be easier to keep detailed records of what you bought and when you bought it,” Morin says.
Adding to this, the IRS treats cryptocurrency as property, as outlined above. In other words, you will have to pay taxes if you have realized a capital gain or you could lower your tax bill if you’ve ended your run at a loss.
The following information should be gathered:
- Time of the purchase
- Amount you invested
- Time of the sale
- Amount received
From then on – it’s a matter of doing the math.
You’ll Likely End Up Having to Do the Reporting Yourself
When you’re dealing with the sales of stocks or bonds, the brokerage firm you’ve engaged or the bank is going to send you a 1099 tax form to fill out.
“That’s not the case for all crypto-exchanges or most transactions,” says Janna Herron, tax researcher.
Coinbase, for instance, which is among the most popular exchanges in the US, will only provide you with 1099-K when you’ve hit $20,000 in gains or went through at least 200 transactions. Obviously, that’s not the case for the regular, small-time investor.
“What that means is the onus is on you to figure out the tax obligations,” says Herron.
Don’t Do the Crime If You’re Not Prepared to Do the Time
Hiding information from the IRS has never been the brightest of ideas. While you may fly under the radar temporarily, in the future, hidden trades might resurface and when it happens, you might get the ax.
While the guidance isn’t as legally binding and is far from being a regulation, it does make certain comments on the stiff penalties non-compliant taxpayers might face.
In certain cases, “taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions,” the IRS stated on Friday, March 23rd.
What’s your position on crypto-related taxation? Don’t hesitate to leave your thoughts in the comments below!
Images courtesy of Pixabay, Twitter/@twobitidiot, and Bitcoinist archives.