When the first cryptocurrency, Bitcoin was launched, many thought it to be just a digital gimmick, and hence, authorities did not bother checking it for taxes. However, over the past few years, the rise of Bitcoin and the emergence of other altcoins invited attention from tax regulators, who imposed taxes on earnings from digital currency trading.
Especially, after the peak in December 2017 and market crash in 2018, Regulatory bodies have become tightened their policies, and have become stricter for tax regulations. As the deadline for tax filing closes in, crypto investors need to assess their gains and losses related to Bitcoin and other crypto holdings and report taxes if applicable.
The move to regulate did not go well with crypto investors, who have staunchly opposed taxation on crypto trade. This was evident from a recent poll conducted on Twitter by famous crypto personality, Crypto Wendy O, which reflected that investors are adamant on not reporting taxes, and are willing to pay heavy penalties if the Internal Revenue Service department finds out their unreported earnings.
What's the status on your crypto taxes?
— Wendy O (@CryptoWendyO) April 11, 2019
According to the poll, more than 80% of respondents are not ready to report taxes as the voted for the ‘Not a chance’ option on the poll question of “What’s the status of your crypto taxes?” Only a mere 15% said that they were doing the assessment, while 5% said that they would do it next week.
The cryptocurrency market faced its worst bears in 2018, with many digital coins losing as much as 90% of their price value. Even Bitcoin kept losing for six straight months, ending the losing streak only in February this year. Because of this most crypto investors might have sustained losses instead of gains. However, investors still need to report their capital asset trading, regardless of profits or losses, and failing to do so may invite heavy penalties and even a jail term.
The US Tax Laws related to crypto assets are often accused of being too confusing and difficult to ascertain. It was reported in January 2019, that the confusion in tax laws could lead $5 billion to be unrealized crypto losses. However, times are changing, as many services have emerged, specializing in crypto taxation. Service providers like Bitcoin.tax and Turbo Tax seamlessly pull data from customer’s crypto exchanges, and automatically calculate losses and gains from the API data, and gives step by step assistance in filling all relevant forms.
Digital currency trading is still a risky affair as it is still an emerging market, and not paying taxes will make it even more vulnerable. Crypto exchanges have been supportive of the IRS and continuously supply users’ information regarding crypto trade, which will be compared with the reported figures of gains or losses submitted by investors. Any substantial discrepancies will lead to strict actions, the minimum of which would be an audit.
Many crypto traders, who have hundreds of transactions to account, may find it a daunting task. However, another famous crypto face, Crypto Tax Girl, gave a feasible solution for this. She stated in a tweet that instead of accounting each and every transaction, calculating total gains or losses per coin would be much easier.
If you’re filing your taxes last minute and are realizing that you still need more time to calculate your crypto gains and losses, go ahead and file an extension and then reach out to me after the 15th and I can help ya!
(Or if it’s urgent, go to https://t.co/TNNG6AOPSf)
— Crypto Tax Girl (@CryptoTaxGirl) April 11, 2019