- Почему сложно учесть доходы от криптовалюты
- Why the exchanges are not able to help
- Does mining income also count as part of your taxable income?
- What about NFTs?
- The IRS always knows
For the purposes of federal income taxation in the United States, cryptocurrency holdings are considered as property, and a certain tax rate is applied to capital gains realized by disposing of crypto. This is why crypto taxes can prove to be a headache for Americans.
Unlike stock market investors who often use one and the same brokerage company for buying, selling and trading their stocks, most crypto investors use several exchanges and have multiple wallets.
Stock investors have their broker file a comprehensive Form 1099-B reporting all their proceeds. In cryptocurrency trading, however, “it’s the users’ responsibility to connect all the exchanges and wallets into just one place, to record and figure out the taxes for that year,” as described by Shehan Chandrasekera, Head of Tax Strategy at CoinTracker, cryptocurrency portfolio tracker and tax calculator.
Along with other platforms including Koinly, TaxBit, and TokenTax, CoinTracker provides investors with useful tools to track their cryptocurrency portfolio on multiple exchanges and DeFi protocols.
According to Chandrasekera, it is also complicated for cryptocurrency exchanges to collect such data. He added, “Let’s say that I’m transferring one bitcoin from my Coinbase account to Uniswap. Uniswap doesn’t know how much I paid for that coin, because the purchase never happened inside Uniswap. So they cannot do the tax information without knowing the cost basis because exchanges don’t talk to each other.”
The problem is aggravated by the fact that investors often use one cryptocurrency to buy another, also creating taxable events. Chandrasekera commented that “in the stock world it never happens. You don’t buy Google stocks using the Apple stocks.”
At the end of the day, each time taxpayers dispose of cryptocurrency, they are responsible for tracking their cost basis, fair market value, and gains or losses estimated in U.S. dollars. Based on that information they must pay crypto taxes. “We all can only think about tax during tax season. But the reality is that taxable events are happening all year long, ” commented Ben Borodach, co-founder of April, a tax preparation platform.
According to the IRS recommendations, it does. If you successfully mine a block of a currency, you need to report the fair market value that the obtained tokens had on the date of their receipt as gross income.
NFT trading also creates taxable events. “If you think about an investor who buys an NFT, they probably had to take their dollars to buy another crypto and then use that crypto to buy the NFT. Well, they just had a potential capital gain or capital loss and they may not have realized that,” Borodach said.
At the same time, when NFT creators sell their tokens on OpenSea, LooksRare, or other marketplaces, income taxes are applied to their profits, and it is unclear whether they should pay additional crypto taxes.
“A lot of people think that crypto is completely invisible from the IRS and the regulators, because it’s anonymous. That’s not true,” said Chandrasekera.
There are various ways for the IRS to track crypto-related transactions, and investors cannot effectively hide such transactions even if they do not withdraw crypto or convert it into fiat money.
Some cryptocurrency exchanges file a Form 1099 with the IRS, notifying the IRS that a taxpayer has participated in crypto trading. As a result, such a taxpayer will have to report cryptocurrencies on their tax return form.
The IRS included a question about virtual currencies in Form 1040 in 2019. Last year, this question in the IRS Form 1040 was formulated as follows, “at any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
Chandrasekera also commented that the IRS may also use blockchain analytics tools in relation to investigating illicit activities when trying to associate anonymous wallets with actual people involved in criminal activities.