With the U.S. tax filing deadline less than a week away, many Americans are yet to declare their cryptocurrency gains. According to the data released by Credit Karma on Friday, April 13, 2018. Less than 100 out of the first 250,000 tax filings via the Credit Karma platform have reported cryptocurrency-based earnings. In a recent survey conducted by TechCrunch, it was revealed that about 5 percent of Americans own bitcoin.
April 17, 2018: Tax Day
April 17, 2018, is the tax filing deadline in the United States. The IRS has in recent times, ramped up its efforts to ensure tax compliance within the cryptocurrency community. As part of its efforts, the IRS even secured a court ruling instructing Coinbase, the largest cryptocurrency exchange in the United States, to hand over thousands of client data to the tax agency. Bitcoin is viewed as property in the United States. As a result, cryptocurrency transactions are subject to capital gains tax. However, if an individual holds on to cryptocurrency purchased the previous year, no taxes are owed.
Crypto Tax Filing Appears Complex
Jagjit Chawla, the Credit Karma General Manager, has attributed the low reportage to the perceived complex nature of cryptocurrency tax filing. As a result, many people are waiting until the last minute. In an email to CNBC, he stated that the process was not as complex as many believe it to be. He also went on to say that Credit Karma has many useful tools that can help people accurately report their crypto gains/losses. The United States is not the only country where the cryptocurrency tax filing process appears to be complex. The nascent nature of the market coupled with its volatility makes it difficult to create clear-cut reporting procedures.
Billions Owed in Crypto Taxes
The cryptocurrency market experienced a boom in 2017. The price of bitcoin increased by more than 1,000 percent and the total cryptocurrency market capitalization reached $500 billion. Based on these figures, Tom Lee of Fundstrat estimates that U.S. households owe about $25 billion in cryptocurrency capital gains taxes. Part of the decline in the price of bitcoin has been attributed to major selloffs by traders looking to pay taxes in lieu of the tax filing deadline. Some experts believe that once the tax season is passed, bitcoin will recover from its slump and begin to climb.
Underreporting of Crypto Gains
Bitcoin tax evasion remains a considerable problem for the IRS. As a result, the agency has been in partnership with Chainalysis to track bitcoin tax evaders. The IRS believes that crypto traders are not reporting their gains to the tax body despite repeated warnings. Elizabeth Crouse, a partner at K&L Gates, a Seattle-based law firm, believes that there is a lot of underreporting of crypto gains. According to her, high-risk tolerance is something that is ubiquitous in the crypto world. Crypto traders are more likely willing to under-declare their profits and roll the dice with the IRS.
David Klasing, an expert in digital currencies, an account and tax lawyer at Irvine, said that due to lack of industry records of bitcoin holdings and the negative stigma attached with illicit activities taxpayers are reluctant to prepare their tax valuations.
In addition, people are apprehensive by the surge of ICO rules that lie alongside U.S Securities and Exchange Commision that may have been avoided. Klasing adds:
“The government is basically just telling practitioners to take a wild-ass guess.”