According to a report published in qz.com, cryptocurrency holders will have to declare their transactions on the upcoming Tax Day on April 17. Until now IRS was dependent on the honesty of crypto users in order to collect taxes but the days of the honor system are limited.
In 2016, IRS summoned Coinbase to share the details of almost all 13,000 clients which included their taxpayer’s name, ID, address, birth date and transaction records. Some of these clients, being the highest grocers, have coins traded over $20,000 in a single year from 2013 to 2015.
The revenue authority did not take transactions from 2016 to 2017 into consideration. It is being looked upon as a crypto friendly move.
As per government guidelines, digital currencies are classified as property instead of real currency. This puts cryptocurrencies into the same bracket of taxation with real estate. Just like paying taxes for selling a house for profit you have to pay the capital-gains taxes in crypto trade.
President’s tax bill from 2017 acknowledges cryptocurrency as a taxable entity. In an amendment to section 1031 (a) (1) concerning “like kind exchanges,” digital currency became legally taxable. Moreover, a user is prohibited from hiding any crypto transaction even if it was never converted into fiat money. In a nutshell, any profit gained with or without intention will be taxed by the government.
On the other hand, a user will not be liable for taxation if he/she never resold the coin. Tax authorities will not bother any person who bought a coin but never traded it again.
It should also be noted that IRS did not update its policies regarding crypto taxes since their commencement in 2014. Since its inception, crypto policies revealed 500,000 to 1.2 million bitcoin owners. As of now, IRS will be adding another three years to the tax liability section.
Few market experts have come up with the theory of tax evasion schemes. The internet is filled with ways to avoid taxation on your crypto deals, and the current scenario will force people to use them. In similar news, abc11.com news reported that schemers are potentially working on tricks to deceive people in the current tax season. Crypto users may get threatening calls from scammers or dubious plans to evade taxes. Some users have already been deceived by fake calls from criminals to pay taxes to a specific account.
Before figuring out your tax liability, you should know that IRS will never ask your debit or credit card on phone or email.
Most of the crypto investors are not aware of their liability towards the Revenue authority. Some investors have also argued about the lack of information towards tax rules. Users can use websites like H&R Block or TurboTax for filing their taxes online but scammers can dupe them in the name of online tax filing too.
We highly recommend using an authentic site and revealing full information about your deals. At present, IRS has not given details of its taxation system but expects investors to disclose their transactions. It would be interesting to see whether crypto community follows or resists IRS’s moves.