This year, the media storm that the whole crypto space had been in for the better part of 2017 has felt more like a soft and calm summer breeze. This might be because the meteoric rise in attention and value of blockchain projects has made way for an equally meteoric fall in 2018, also in attention and value. This, in turn, might have lead to mistrust and disinterest of many formerly enthused—and probably formerly rich—tech journalists.
This radio silence, save for a few sprinkled bits of negativity, makes one thing very surprising: bitcoin was one of the highest performing assets of 2019. Even including the recent downturn, the asset has about doubled in value this year.
This is great news for everyone who joined at the beginning of this year. But what happens when you want to spend some of your gains? When converting bitcoin back to fiat (or USD), you have to pay taxes on your gains.
So far, the IRS has been fairly lenient in the monitoring and prosecution of Crypto tax evasion. However, the wind is changing. There is a yearly potential of more than 10 billion USD in untapped tax revenue that the IRS might be missing out on.
To drive this point home, imagine that you bought all bitcoin on December 1, 2018, and have sold everything exactly one year later (ignoring the impossibility of this feat). How many taxes would you have to pay?
According to Coinmarketcap, the market cap of Bitcoin on Dec 1, 2018, was around 70 billion USD. One year later, on Dec 1 of 2019, it was closer to 140 billion USD. Therefore, the gains you would have realized would be around 70 billion USD. Even when calculating with a low tax rate of around 15%, that would leave around 10 Billion USD in taxes. While you would be pretty annoyed at that bill, there is one agency that would be very happy to take that money. Ten billion USD in taxes is a lot of gains for the IRS.
And since blockchains are public and cannot be altered or manipulated by design, all transactions connected to a name at any point in time can be indisputably identified.
Paired with the media talking about illegal action such as drug and weapons trading, it is not surprising that the IRS has taken note. Going after illegal drug and weapon markets sounds much more positive than looking for tax evasion.
In its annual report of 2019, which is only about 75 pages long, the words “bitcoin” and “crypto” are mentioned a total of 43 times. After a recap of the last 100 years and a letter of the Chief, the first topic on the agenda of the report is that of “cyber crimes”. In it, the IRS talks about tools that other agencies and NGOs are already using such as “Digital currency identification (bitcoin wallets, etc.)” and “extraction of data from proprietary financial software (tax preparation, accounting, payroll, point of sale systems, custom databases, etc.)”
This means that the IRS is going to take taxation of cryptos much more seriously.
With the attention that this is getting, it is to be expected that they will get to each and every relevant transaction and address sooner or later.
It is, therefore, becoming more and more important to file your taxes correctly. To make sure that you get to the bottom of your tax report before the IRS does, you can use one of the available coin tracking platforms. Accointing as one of them also offers a tax report that can be automatically generated and saves a lot of time and effort in calculating your yearly gains.
© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.