Cryptocurrency tax: What you should know
Have you paid your cryptocurrency tax? This question is becoming even more serious as taxation agencies continue to pursue crypto holders and traders. Taxation in crypto has been quite ambiguous, as most countries still lack any taxation policies for the crypto industry. For the jurisdictions that have attempted to enforce crypto taxation, it hasn’t been so smooth, due to the lack of public sensitization on the subject.
The U.S. Internal Revenue Service (IRS) has been one of the government agencies that have sought to enforce crypto taxation. The agency has been talking tough this year, even sending over 10,000 letters to crypto holders whom it believes owe the government taxes. However, the number of people who have heeded its call remains very low.
Speaking to CoinGeek, Muroch stated, “The generally low numbers of crypto holders submitting their holdings comes as no surprise due to the overall lack of transparency by the IRS, and minimal exposure of new regulation in the mainstream media, preventing investors from seeing the clear picture.”
Muroch, whose firm has more than $3 billion in assets under management, believes that things are slowly changing. Crypto holders are getting more knowledgeable with taxation, thanks to the increased media coverage on the subject. Regulators have also formulated some policies that encompass the sector.
He remarked, “The U.S.-based Internal Revenue Service and Generally Accepted Accounting Principles (GAAP) will likely serve as the status-quo for businesses and professionals when operating and transacting with cryptocurrencies and the accompanying taxation requirements. This will be especially important for businesses and investors wishing to do business or transact in the U.S.”
As CoinGeek reported, the IRS has been keen on crypto taxation, recently moving to amend the most common tax filing form to include the question, “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?“ This is a big step, Muroch believes, stating:
The IRS has been very unforthcoming with its classification and real-world application for accountants and finance professionals. This new draft version of the 1040 IRS Form for disclosing cryptocurrency on basic tax forms is a first for the IRS. Coupled with the issuance of official memos requesting feedback on the new form from affiliates shows they are more serious than ever before.
As a crypto holder, you may be making some common accounting mistakes that lead to errors in your tax filings. Muroch remarked, “Investors, businesses and holders of cryptocurrencies are unaware of the legal guidelines and are rarely in possession of complete financial records for their personal crypto holdings. This poses a serious challenge for tax practitioners and accountants that need to rely on exact and complete records of assets or transactions when auditing or filing taxes.”
Crypto taxation is taking center stage, with more startups springing up to fill the void. Muroch’s company Blox currently serves some of the largest companies in the industries including Polkadot, Ziliqa, Paxful, eToro, Crypto.com and 0x. Recently, crypto tax calculator CoinTracker raised funding from Reddit founder Alexis Ohanian and tennis legend Serena Williams, further underlining the rising prominence of the sector.
For CPAs, the biggest challenge continues to be the regulatory ambiguity. Moreover, the industry still lacks efficient technological tools, unlike other taxation fields. Muroch shared, “More importantly, the task of calculating crypto profit and loss relies on professionals using manual and ineffective traditional methods such as spreadsheets instead of intelligent automation. A Crypto Accounting Report recently indicated that CPAs are witnessing a lack of technology and education. This is preventing investors, businesses, and finance professionals from accessing the knowledge and information needed to navigate the next generation of cryptocurrency assets and management.”
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