Crypto Tax Policy in the US as Unclear as Ever
If you’re from the US and are confused about the cryptocurrency tax policy in the face of next week’s deadline for filing, you’re not the only one. The Internal Revenue Service (IRS) seems as confused as everyone else.
The twice-weekly newsletter Chain Letter by MIT Technology Review aims to clarify as much as possible while bringing to light more uncertainties than taxpayers may have noticed, although even they say that, “navigating the legal gray areas left by today’s rules can be a bit like wandering through a minefield.”
Buying and holding is not taxable as the IRS treats crypto mostly like property, which means most sales and trades are subject to capital-gains tax. However, should you use crypto to buy anything at all after your holdings have increased in value, you’ve experienced a gain, and that’s taxable. This means that for every purchase, you must report the amount you spent and the difference between the currency’s value when you spent it and the value when you first got it, and if you’ve gained at all – tax.
But as Bloomberg points out, there are tricky scenarios such as airdrops – the coins appeared in your wallet out of nowhere – and hard forks. Many accountants say both are taxable like ordinary income.
Evading taxes, even on something based on anonymity and avoiding government control, is definitely illegal: the IRS said in March that if taxpayers don’t “properly report” their transactions, they could face penalties and in extreme cases, criminal prosecution.
In a succinct and no-nonsense roundup of the problem, David Klasing, an accountant and tax lawyer specializing in crypto in Irvine, California, told Bloomberg, “The government is basically just telling practitioners to take a wild-ass guess.”