As the deadline for filing taxes approaches in the U.S., crypto traders and investors don’t seem to be in a rush to file their crypto gains. According to a report by Credit Karma’s tax services, less than 100 out of 250,000 have reported capital gains on cryptocurrency. The cryptocurrency market capitalization has increased tremendously over the past year, and a decent amount of crypto traders have made some serious profits. Given the amount of money that is at stake, you can bet the government will go after its cut with a passion.
The Internal Revenue Service(IRS) provided a guideline on the tax treatment of virtual currencies back in 2014. According to the document, the IRS views virtual currency as a property. This means that the purchase, sale and mining of crypto are considered a taxable event. For crypto traders who do multiple trades a day over the course of a year, the amount of activity they have to report can be staggering. As stated by Jagjit Chawla, general manager of Credit Karma, one of the reasons for such a low number of filings could be due to “perceived complexities” of reporting cryptocurrency gains.
“There’s a good chance that the perceived complexities of reporting cryptocurrency gains are pushing filers to wait until the very last minute.”
Jagjit Chawla, Credit Karma General Manager
Another possible reason, given crypto traders’ tolerance to high risk, is that some are not planning to report their cryptocurrency assets at all. As stated on CNBC by Elizabeth Crouse, a partner at K&L Gates law firm, there will be a considerable amount of underreporting when it comes to crypto. Many traders believe they can avoid paying taxes thanks to the anonymity provided by the blockchain. Furthermore, cryptocurrencies have been evolving at such a fast pace that regulatory agencies have been struggling to keep up.
“If I had to guess, there’s probably a lot of underreporting… Most of the people in the cryptocurrency world tend to have a pretty high-risk tolerance.”
Elizabeth Crouse, partner at K&L Gates law firm
Whatever the reason behind the low number of reporting, cryptocurrency investors would be wise to start taking the tax man seriously. Governmental organizations like the Security and Exchange Commision(SEC) and the IRS have been taking steps over the past year to regulate the digital assets. One of the latest examples of this is when CoinDesk, a popular crypto trading platform, received a federal court order demanding the company to hand over the data of 13,000 of its users to the IRS. More crypto exchanges are likely to receive similar directives as the crackdown intensifies.