United States tax deadline closed on April 15th, but due to overwhelmingly confusing laws, the bitcoin investors kept scratching their heads about what to do. Even though the government suggested that investors would require to report their losses and gains on their annual tax filing, but the lack of clarity on the matter is becoming an issue. The Internal Revenue Services has not released a specific tax code for bitcoin and cryptos yet.
The Internal Revenue Services (IRS) is the government’s tax administrative agency. The IRS’s mandate includes a clause from collecting taxes to taking action against tax evaders. The IRS collects more than 4 trillion dollars in federal taxes every year and processes 240 million tax returns.
While many investors are confused over the process of filling their tax returns, a few bitcoin investors outrightly rejected the idea of filing taxes on their bitcoin earnings. In a poll conducted by a bitcoin influencer, Wend O on Twitter, asking investors whether they would file their crypto taxes. More than 80% of the people who participated, replied not in favor of crypto taxes.
What’s the status on your crypto taxes?
— Wendy O (@CryptoWendyO) April 11, 2019
Congress Asks IRS for More Clarity over Bitcoin Taxes
The reason why bitcoin is being taxed is beacuse the Internal Revenue Service (IRS) in 2014, classified bitcoin and other cryptocurrencies as property rather than currency, thus making them taxable. Therefore, all bitcoin conversions, sales, donations and income are supposed to be reported to the IRS so that they can be taxed. However, the tax policy is still not clear, the classification of property makes bitcoin taxable, but the details are still vague. To completely comply with the property tax code, bitcoin traders have to log every transaction they make through bitcoin and report the gain and loss on every transaction. For traders who make millions of transactions every year, this is a confusing and arduous process.
Amidst all this confusion over the crypto tax, Congress sent a letter to the Internal Revenue Services (IRS) to clarify the tax policy on bitcoin traders in the U.S. The letter states that since 2014, when bitcoin and other cryptos were classified as property, no essential guidance has been provided to the people. IRS has failed to address even the basic questions of people, and while the IRS provided initial advice, but ambiguity over tracking and reporting of transactions is a serious concern. The letter also showed interest over IRS’s actions, saying that IRS instead of informing people about the tax code, has started enforcing policies against the taxpayers who misreported their returns. Congressman Emmer one of the contributor of the letter and member of the Blockchain Caucus said:
Guidance is long overdue and essential to proper reporting of these emerging assets. The bipartisan support this letter has received should send a clear message to the IRS that clear guidelines for reporting virtual currency are necessary.
While the Letter gained much support from the people; however, few lawmakers are concerned about the letter citing that the letter may further complicate things. The letter may now become an excuse for tax avoiders, who will now use the ambiguity to get out of IRS’s action against them. However, the letter may force the IRS to make the tax code a little clearer on the Bitcoin issue.