- The tax deadline is here!
- Crypto investors may be liable for income tax and capital gains tax based on their activity.
- Capital gains tax and income taxes are applied differently based on the nature of crypto transactions.
- Read on for some tips for staying in good standing at the IRS.
The vast majority, 85%, of Americans believe that the current IRS tax code is too complicated according to a poll done in 2017 for NPR. It would clearly appear that the millions of Americans involved in crypto would comprise a sizable portion of that sample.
With only a few days or hours to file, approximately 96% of crypto investors had yet to file as of the end of March according to a survey of U.S. crypto investors performed by Wakefield Research for CoinTracker.
Perhaps far more concerning is the fact that many have not yet made the realization that crypto is taxable. This bit of news comes from a 2021 survey from CryptoTrader.Tax, which has now been renamed CoinLedger.
The IRS has made it clear that the gains from crypto transactions are taxable as property and is requiring taxpayers to declare these gains each year. In response to the public’s growing interest in crypto, the agency is becoming increasingly aggressive in enforcing compliance by subpoenaing records from crypto exchanges and trying to track down privacy coins.
“Even though crypto adoption has grown in the U.S., crypto tax literacy needs to be improved,” Shehan Chandrasekera, head of strategy for tax at CoinTracker stated. “One thing we are seeing is [that] especially newcomers in this space don’t even know where to start.”
Declan Harty shared this confession in Fortune’s newsletter on cryptocurrency and financial technology.
“A confession: I’ve never filed my own taxes.”
Now 28 years old, I—a financial journalist—have gone more than a decade of never having done state or federal taxes. Don’t worry, the paperwork does wind up in the right hands. I’ve just never filed it myself. My wife, who is more responsible with money than myself, handles most financial work in our house—including our taxes. To me, tax forms are like what I imagine a dog thinks when they tilt their head while watching humans dance. What is happening here?”
Harty goes on with this statement, “So, for the possible benefit of those who are sitting down this holiday weekend or perhaps have filed for extensions, following are some insights that can allow you to stay in good standing with your friends at the IRS.”
- Check that box. For the last few years, the IRS has made telling the federal government about your crypto investments straightforward. On the top of a Form 1040, right below all that baseball card-like information, there’s a line asking “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” If you did, you should check it. You’ll also notice the IRS doesn’t say “purchase.” That’s because unless you realized some sort of gain on your investment—by selling it, staking it, or what have you—you’re in the clear. (Assuming you bought the token in USD. If not, more below.)
- Know the differences between taxes on crypto. In general, the IRS sees crypto similarly to investments like stocks—meaning it wants you to report any gains and losses from crypto investing. (Here’s CoinDesk on the specifics.) But there are some key differences between something like accounting for a stock sale on your taxes versus a crypto sale. Among them? Unlike the stock market, where you cannot trade a share of Tesla for one of Apple, you can trade a SOL token for ETH. And that is, in the eyes of the IRS, taxable.
- Brace yourself. For stocks, taxes can be relatively straightforward in that the brokerage you use provides a Form 1099-B, which details all of your transactions over the prior year, and, importantly, the gains or losses you must report. Crypto exchanges, for now, are not required to do so—making things tricky for investors, who need the details of their crypto investing endeavors to properly account for them. (There is software that can automate this process, and, if you haven’t filed yet, it may be worth using at this late stage.)
- Definitely don’t lie. The repercussions can be painful, ranging from an audit to, yes, even criminal charges, according to H&R Block.”
Via this site
Declan Harty
@declanharty
Declan.harty@fortune.com
