A study has found that only a tiny percent of people have reported their cryptocurrency gains and losses to the Internal Revenue Service (IRS) so far this year.
According to Credit Karma, a free credit monitoring app, fewer than 100 people, out of the 250,000 who have already filed their federal taxes this year through the company, disclosed a digital currency transaction to Uncle Sam, reports Reuters.
This is notable considering a preliminary survey conducted last month by Qualtrics, a credit score startup and research firm, found that 57 percent of the 2,000 Americans surveyed indicated that they had made some gains with digital currencies. Of those questioned, though, 59 percent said that they had never reported these taxable gains to the IRS.
Jagjit Chawla, General Manager for Credit Karma Tax, said that the results weren’t too surprising:
“While so few people have reported Bitcoin and other cryptocurrency gains or losses, we’re not surprised. Generally, Americans with more complex tax situations file later in the tax season, especially if they expect that they’ll owe money. However, given the popularity of Bitcoin and cryptocurrencies in 2017, we’d expect more people to be reporting. We encourage anyone who thinks they may have cryptocurrency-related gains or losses to visit Credit Karma Tax and take advantage of the resources we have available for them.”
In a bid to gain access to the records of cryptocurrency investors, the IRS successfully sued digital currency exchange Coinbase in November. As a result, a federal court judge ordered the San Francisco-based company to comply with a summons that required it to identify 14,355 accounts.
The order, covering transactions between 2013 and 2015, was the result of an on-going battle between the two when the IRS initially ordered Coinbase to hand over the personal information of more than one million accounts.
Even though the cryptocurrency community has been evasive about any profits they’ve made, plenty will have made gains after a surge in bitcoin’s price last year. At present, it now costs just under $8,600 to purchase one bitcoin. Notably, though, digital currency investors are saying that traders need to comply with the IRS.
Speaking at a CB Insights’ Future of Fintech conference in June, Mike Novogratz, former hedge fund manager at Fortress Investment Group, and now CEO of Galaxy Digital, said:
When I talk to the blockchain community, I’m always pushing [them], I’m like, “Dude, A, pay your taxes.’ Because nobody in that space pays taxes. Listen, the IRS is gonna come after people. People are making real money now and the IRS isn’t stupid.
The IRS project that around 156 million people will file their federal taxes this year. Even though it’s still early in the year, so far the IRS has received just over 18.3 million tax returns. Last year, around one million people filed their taxes with Credit Karma’s services.
Additionally, Jagjit wanted me to share the following tips that our readers may find helpful:
- Cryptocurrencies are considered property by the IRS. The IRS considers anytime someone buys, sells, trades or mines a cryptocurrency a taxable event.
- How long someone held onto their Bitcoin or other cryptocurrency can affect their tax liability:
- If you held cryptocurrency for more than a year, you’re likely looking at long-term capital gains or losses.
- If you held your cryptocurrency for less time, you could be looking at short-term capital gain or losses.
- The tax rate on most net capital gains generally won’t be higher than 15 percent for most taxpayers.
- It’s important to accurately track all your cryptocurrency trades and record the value of each current fair market value (in U.S. dollars) and the dates of receipt, as this information can help you report your cryptocurrency transactions on Form 8949 and Schedule D.
Edit, 1354 CST: Updated comment from Jagjit.
Featured image from Shutterstock.