Americans Choose Not To Disclose Crypto-Related Earnings
Credit Karma, an American multinational personal finance company that offers free (basic) credit scores and reports, has stated that very few cryptocurrency investors have notified the U.S. Internal Revenue Service (IRS) about their investments. In fact, the credit reporting agency revealed that out of approximately 250,000 Americans who filed their taxes through them this year, fewer than 100 individuals included any crypto-related transactions on their tax returns. It seems that many taxpayers could be trying to get away with not paying taxes on their crypto earnings, especially if you consider that leading research firm Qualtrics found that 57% of 2000 Americans recently surveyed claimed to have profited from cryptocurrencies.
A significant number of the same investors, who were surveyed by Qualtrics, also said that they have never reported their crypto-related earnings to the IRS, commonly referred to as “Uncle Sam”. Many investors even admitted that they were aware of how to file taxes on cryptocurrencies, but apparently decided not to. Notably, the IRS classifies digital currencies as property. Therefore, any profits or losses from the buying or selling of cryptos are considered to be capital gains (or losses), which must be reported to tax authorities in most cases.
Hard To Figure Out Who Holds Cryptocurrencies
Currently, it’s difficult to determine exactly how many Americans are dealing in cryptocurrencies, which are usually acquired through centralized cryptocurrency exchanges. The main reason why it’s hard to estimate the number of crypto-investors is because many people have chosen to remain anonymous, or use aliases, while conducting digital currency transactions. Presumably, individuals could have kept their identities secret so that they won’t have to pay taxes. However, it’s possible that the crypto-market has grown so quickly that even tax authorities aren’t sure how to properly instruct people on how to report taxes on their cryptocurrency earnings.
There’s clearly no shortage of users on cryptocurrency exchanges. In fact, it’s quite common now for trading platforms to go down due to traffic overload. And, as most of us are aware, crypto-exchanges have become a very attractive target for hackers because a lot of money is available on them. So, it should be evident that there’s definitely a substantial amount of taxable income being generated through the digital currency market.
Complicated Tax Returns
Jagjit Chawla, General Manager at Credit Karma Tax, thinks that it’s challenging for people to file tax returns which show their crypto-related earnings. However, as the tax reporting deadline approaches, he predicts that more people who have complicated tax returns will come forward to report their earnings. However, he still asserts that “Given the popularity of bitcoin and cryptocurrencies in 2017, we’d expect more people to be reporting”.
It should be noted that U.S. residents need to report their taxes by April 17th, and around 156 million individuals are expected to file tax returns this year. So, there might be more crypto-related transactions reported to Uncle Sam in the next few months.
When you consider that fewer than 1 million taxpayers filed their returns with Credit Karma last year, there’s a chance that the sample size might be too small to assume that not enough people are reporting their crypto-related earnings. Also, governments are fully aware that quite a number of people might have profited from the crypto-market. In fact, as Core Media reported earlier, the state of Arizona has even proposed a bill to accept cryptocurrencies as payment for taxes. More than likely, it will become a routine procedure for people to report their crypto earnings in the foreseeable future. After all, Uncle Sam doesn’t like to skip out on too many payments.