As tax season rolls around this year, it has been revealed that a tiny percentage of taxpayers are reporting cryptocurrency. A study from Credit Karma shows that less than 0.04 percent of filers are laying claim to bitcoin gains.
The IRS has released several warnings concerning reporting cryptocurrency gains on taxes. In spite of this, bitcoin has been scarce.
Credit Karma also released in their report that fewer than 100 of 250,000 federal tax returns prepared and filed this year have filed a Form 8949 for cryptocurrency gains and losses. While this report only deals with Credit Karma clients, the results are quite shocking.
Credit Karma Tax General Manager Jagjit Chawla spoke on the matter, “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.”
Credit Karma reported that 52 percent of their filers are millennials while just 14 percent are at least the age of 55. The company launched its free tax service last year with 1 million filers taking them up on the offer. This sparked Credit Karma up to being the 5th largest e-filing service.
Independent cryptocurrency trader and former investment banker, Brandon Williams, stated, “The lack of cryptocurrency tax filings emphasizes the difficulty in accurately reporting your crypto gains and losses.”
Williams went on to state that for his cryptocurrency filing purposes he uses CoinTracking, an online service, to record bitcoin transactions for tax purposes.
Cryptocurrencies are treated as property rather than a currency by the IRS. This results in actions of trading bitcoin for another digital coin being taxed. The reasoning behind this is that it is considered a sale of property for cash which is then used to buy the other cryptocurrency.
As cryptocurrency is considered taxable property by the IRS, the income from creating bitcoin is also taxed.
Brandon Williams believes it would be more sensible to treat cryptocurrencies as currencies rather than property. By designating bitcoin as property is “almost a deterrent in [the] pursuit of mainstream adoption.”
Williams is holding off on filing taxes until early April “in case there’s more visibility and definition from the IRS about what would be acceptable.”
So far this year, the IRS had reported that only 18.3 million individual tax returns have been filed. This accounts for only 13% of the expected number for this tax season. Even so, cryptocurrency traders and investors seem reluctant to report their gains. This comes as no surprise as cryptocurrency investors have a history of evasion.
In 2017, the IRS sued Coinbase, a dominant cryptocurrency exchange, for access to customer records after a small number of 802 people reported their 2015 Bitcoin gains and losses.
Mike Novogratz, a billionaire hedge fund manager, reference his warning to the bitcoin community, “When I talk to the blockchain community, I’m always pushing them—I’m like, ‘Dudes, A), pay your taxes.’ Because nobody in that space pays taxes.” Novogratz has become a high profile cryptocurrency investor.
He went on to warn the blockchain community, “Listen, the IRS is going to come after people. People are making real money now. So, the IRS isn’t stupid.” While it is still early on in the tax season, it might prove to be another year of small percentage in reporting cryptocurrency.
(To learn more about taxes on cryptocurrency, read Bitcoin income is considered taxable in 2018.)