Earning crazy money with bitcoin is fun. But paying taxes on those bucks is a little less fun for majority of investors.
According to reports from Credit Karma tax platform, revealed by CNBC, fewer than 100 people out of 250,000 who claimed to have holdings in crypto reported capital gains on their crypto investments to IRS. That is a staggering 0,0004 percent!
“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, general manager of Credit Karma Tax, said in an emailed statement.
“I want to reassure people that it’s not as complex as it may seem at first glance and that Credit Karma Tax has a number of resources about how to approach bitcoin and taxes.”
The company also reported on demographics of its users: they said 52 percent of its filers this tax season are millennials, and just 14 percent are at least age 55.
Crypto investors have been on an IRS radar all the time since the whole market recorded huge gains and price jumps in 2017, bitcoin trading from less than $1000 in January to above $19,000 in December.
Earlier this year, the Internal Revenue Service also revealed details about its investigation into tax evasion related to cryptocurrencies. Their documents also show that only a tiny percentage of digital currency owners are reporting profits or losses in their annual returns.
In their effort to regulate and collect crypto taxes, IRS concentrated mostly on biggest US exchange Coinbase. They issued a sweeping summons for this exchange to turn over a vast amount of customer data, including every customer account as well as detailed transaction records.
The IRS paid attention to crytocurrencies long time ago – there is a guidance on bitcoin transactions since 2014. According to this guidance, IRS considers the cryptocurrency to be property, not currency. As such, every purchase, sale, trade, and mining effort is considered to be a taxable event.
A survey from LendEDU and conducted by Pollfish in November 2017 found that just a bit more than a third of respondents were not planing to report their bitcoin transactions to the IRS. About 64 percent of the 564 American adult consumers who responded said they planned to report or have already reported their bitcoin transactions.
If the IRS discovers you under-reported your income when you file your taxes in April,
“there is a failure-to-pay penalty of 0.5 percent per month, starting after the month in which it was due,”
Losi, yan Losi, a certified public accountant and the executive vice president of Virginia accounting firm PIASCIK, explains.
“Then there is a failure-to-pay penalty of 5 percent on top of that.”
Then, there’s also interest to pay on top of all of that. So, entering the ring with IRS is not a fight you want to pick.
The taxes are due to be filed by April 17th and let’s hope all investors be smart about it and avoid trouble with Uncle Sam by giving him his piece of cake.