Coinsgeeks | Mar 31, 2018 | 0
If you traded on Coinbase, the IRS might be coming for you
Tax day in the US is on April 17—and if you made some money off bitcoin, ethereum, or another cryptocurrency, you need to declare your wallet. In the past, the IRS has mainly relied on the honor system for people to report their crypto earnings—but honesty and taxes have not traditionally been bedfellows.
After a summons was issued in 2016, earlier this year Coinbase, the largest cryptocurrency exchange on the internet, was forced to hand over the details of around 13,000 users, including their taxpayer ID, name, birth date, address, and transaction records. These were some of the top-earning users from 2013 to 2015 who traded over $20,000 on the exchange in a single year.
Weren’t lucky enough to make $20 grand on crypto? Though the IRS has not issued a similar summons yet for 2016 or 2017 Coinbase transactions, you’d be wise to cough up early. The tax man appears to be a crypto bro.
Why do I have to pay crypto taxes?
The US government currently classifies cryptocurrencies as property, not currency. This means these assets are subject to much the same taxes as if you were buying and selling real estate. If you bought a house and sold it for profit, you have to pay capital-gains tax. If you bought bitcoin cheap and sold it at a profit, it’s the same. (Congratulations, by the way. Nice yacht.)
When US president Donald Trump signed his monumental tax bill into effect late last year, it more clearly defined cryptocurrency as a taxable entity. It included an amendment to section 1031 (a)(1), which concerns “like kind exchanges,” meaning any crypto being traded for another is now legally taxable. So even if you have never converted your crypto into fiat currency (i.e. the US dollar), but you have traded between two cryptos (like buying ethereum using your bitcoin), then you need to declare it. If you unintentionally earned money through one of your currencies forking, even though you didn’t have control over it, then that’s also a taxable event.
Shockingly, the IRS has not updated its policies on crypto taxes since they were written in 2014. The following year, only 804 Americans declared taxes on crypto gains—despite an estimated 500,000 to 1.2 million people owning bitcoin that year. Add another three years of taxes, and that’s a lot of money that is owed.
Many people currently wrestling with their returns don’t know that they’re meant to declare their bitcoin earnings. And there’s no one to tell you: When filing taxes online through US websites like TurboTax or H&R Block, there isn’t a checkbox that asks if you sold cryptocurrency that year. And as cryptocurrency is written on top of blockchain technologies, which is an immutable public ledger, it’s likely that tax fraud will become harder to get around in a future dominated by crypto.
So let this be a warning: Declare all your wallets, even the ones the IRS can’t yet see.