During the last couple of years, all around the world, there have been numerous discussions on what the proper taxation mechanism for digital currencies is. The lack of a united approach towards this issue has led to countries implementing vastly different taxation policies.
The issue goes deeper, as in the United States, citizens aren’t yet sure what approach they should consider when doing their taxes. While the IRS has provided guidance on bitcoin transactions for a couple of years, bitcoin is considered as property. This means that the purchase, trade, sale and mining of crypto can be regarded to as taxable actions.
However, keeping track of all transactions made across a multitude of addresses and different coins is not only difficult, but also time-consuming and expensive. This has led to many people deciding not to file for tax anymore on crypto-related sales/purchases.
With this aspect in mind, a report published by Credit Karma, claims that under 100 people have reported crypto transactions to the IRS, out of 250,000 people who have filed their taxes recently. The figure, which is of roughly 0.04% of tax filers is even lower when compared to last years’, when only 802 people had included digital currency gains and losses on their tax filings.
The general manager of Credit Karma did mention that: "There is a good chance that the perceived complexities of reporting cryptocurrency gains are pushing filers to wait until the very last minute."
Despite having an unclear guidance, the IRS went ahead and sent out a warning to tax filers, letting them know that crypto-related income sources should be reported on the tax returns. Failure to do so, in the worst case scenario, can lead to fines as high as $250,000 and possible prison time.
Things get even more complicated considering the fact that the IRS requires citizens to consider the original value of digital assets, which is hard to find, given the constant price fluctuations in the digital currency market. Many have went ahead and recommended accountants for such purposes, yet filing tax on simple digital currency transactions should be easier, especially if transactions are not part of a business, but rather personal.
Based on everything that has been outlined so far, what are your thoughts on the cryptocurrency tax issues that US citizens are facing? Let us know your thoughts in the comment section below.