Experts are of the opinion that very soon taxes could be levied on the gains that traders and investors make from the trading of cryptocurrencies and with the highs that some of the digital currencies reach.
Starting with less tan a dollar in value, bitcoin reached a value of $997 ta the beginning of 2017 and nearly touched $2000 in the same year to return back to $8500 on Friday. This reflects the wild fluctuations of the value of digital currencies. Now such highs and lows of some cryptocurrencies have made some digital currency traders to face tax bills that would not be payable with the remaining value of digital coins currently.
A trader of cryptocurrency claimed to have amassed a tax liability of $50,000 on trades following selling of bitcoins for $12,000 for another digital currency, in an article on Reddit last week under the heading “I just discovered that I owe the IRS $50k that I don’t have, because I traded in cryptos. Am I fucked?” Currently the value of those currencies is about $30,000.
“I feel like I might have accidentally ruined my life because I didn’t know about the taxes,” the poster wrote. The U.S. tax authorities view cryptocurrencies as a property and not a currency despite the fact that almost all cryptocurrencies were created to serve as currencies and outside of the purview of regulations of the government and banking industry.
Taxation as a capital gains would be liable for anything that is purchased by a digital currency, according to the Internal Revenue Service. Therefore, for any individual who had used cryptocurrency for payment of anything could be liable for capital gains.
Coinbase, a platform used for bitcoin trading, was ordered to provide information that would identify accounts valued at $20,000 or more during the time period of 2013 and 2015. This order was issued by a US district court judge in California in November.
This measure was taken after there was revelation that in each year from 2013 to 2015, only about 800 taxpayers acknowledged making gains from bitcoin. The IRS had initially requested information on 480,000 accounts while only about 10,000 accounts would be impacted by the Coinbase agreement.
Tax evasion could be the result of non-reporting of gains.
It is a tendency among some accountants to choose to remain unknowledgeable about crypto-accounting rulings, said William Perez, a tax accountant at the online tax filing and advisory service Visor.
“Among crypto-investors, I see resistance to reporting it,” he says. “Then there’s another group who’ve got a 1099 from Coinbase but they don’t know what it means.”
Because crypto-to-crypto transactions are taxable it has been easy to spot investors doing so. “That often catches people off guard, but once you break it out you’ve sold one coin and invested in another. That’s one bear trap,” said Perez.
Crypt being used for purchasing is a second source of identification according to Perez. However, there is a difference between crypto and the likes of PayPal or a gift card because crypto currencies are not mere means of exchange. “Under accounting rules, you have property that you exchanged for something else.
“People think because they’ve paid a sales tax so that’s the end of the story. But it’s not. We’re talking about a property denominated in dollars. If you exchange that then there’s a tax liability.”
“The US government is getting some hands-on experience with how crypto works,” Perez says. The action against Coinbase, he points out, was about trying get visibility on trades and whose trading.
(Adapted from TheGuardian.com)