Tax Return Deadline in the US is Today
The deadline for filing your tax returns is today, April 15th, if you’re a citizen of the United States – and while that’s always considered less than ideal news, it’s especially difficult if you trade cryptocurrencies, because the system is notoriously complicated – and the Internal Revenue Service (IRS) has never clarified their stance on six basic questions that every cryptocurrency owner wonders about.
What we know for now
The Internal Revenue Service (IRS) has published a guidance on paying taxes on cryptocurrencies back in early 2014 and has not since updated anything, although the market has significantly evolved. For example, cryptocurrencies are not viewed as currencies at all, but as “intangible property,” similar to stocks.
Buying crypto with fiat is a non-taxable event, along with gifting the equivalent of USD 10,000 per recipient, or transferring coins between wallets. What is taxable, however, is the sale of crypto either for fiat or for other cryptocurrencies, exchanging it for a service (or, well, paying with it), mining, forks and airdrops, and receiving compensation in crypto (or being paid in it). For now, cryptocurrency traders have to track all their transactions that fulfill any of the above criteria and calculate the amount they owe the government.
Additionally, airdrops are an especially difficult matter, as the US-based authorities have yet to agree on what they really are. Recently, the Securities and Exchange Commission (SEC) implied that airdrops could constitute securities, although there is no monetary investment being made in them. They are also a sticking point for tax purposes, making up one of the six main questions that the IRS needs to answer to make the tax process simpler to follow.
What we’d like to know
As Cryptonews.com recently reported, Washington-based crypto-focused research and advocacy institution Coin Center published a report with six basic questions not clearly addressed in the 2014 guidance. These include how to calculate the fair market value of cryptocurrencies, how to track cryptocurrency transactions they’ve made, and how people should treat airdrops and forks.
The report also offers solutions to these problems, like letting cryptocurrency traders use tax lot reliefs that are available to stocks and some other securities, instead of having to go through the onerous task of tracking each transaction by hand and then calculating how much tax they owe on those.
Airdrops and forks are also addressed, as there is always a possibility that a user is simply unaware of even having received new tokens, and Coin Center proposes taxing them only when they’re being sold, instead of making them subject to taxation at the moment of receipt.
What are the penalties?
Although not paying taxes because you think, “What’s the worst that can happen?” is generally not advisable, it is a good idea to know exactly what might happen. If, by the end of April 15th, you don’t file your return or get approved for an extension, you will receive a penalty that generally starts at 5% of your unpaid taxes, according to American personal finance company Credit Karma. This is also the case if the IRS discovers you have underreported your income. The amount you owe also generates interest over time.
According Credit Karma, “If you eventually file but it’s more than 60 days after the due date (either April 15 or the Oct. 15 extension deadline), there’s a minimum late filing penalty. For returns that were due this year, that penalty is USD 210 or an amount equal to 100% of the tax you owe – whichever is less.”
"Failed to address fundamental tax questions"
The IRS remains tight-lipped on all things cryptocurrency, only recently tweeting that, “To avoid the late-filing penalty be sure to file an IRS return or request an extension, even if you can’t pay the full amount owed.” They have also not publicly replied to the Coin Center report yet, even though it was sent to them through 21 members of Congress, led by Representative Tom Emmer, who had also lent a hand to Coin Center in creating the report.
In the official statement published by Rep. Emmer’s office, he says, “The 2014 guidance by the IRS failed to address fundamental tax questions, and repeated requests to the IRS for additional clarity have been made by a variety of entities. It also indicates that rather than providing clarity, the IRS has instead increased enforcement activities against taxpayers who ‘misreport’ their cryptocurrency transactions.”
Moreover, Americans have lost billions trading cryptocurrencies last year, but they don’t seem to intend to report that, according toa survey, even though they could claim a deduction.