The 2018 cryptocurrency price declines may push US-based investors into problems with the internal revenue service (IRS). Considering reports that indicate a low volume of virtual currency tax reportage among Americans, losses incurred this year could see previously unreported cryptocurrency holdings come to light.
Triggering Tax Losses May Come with Negative Consequences
According to CNBC, people who failed to indicate ownership of digital currency assets in previous tax filings could be in for a complicated ride in 2019. The virtual currency market has plummeted by more than 60 percent. Prices of cryptocurrency assets have fallen massively from their late 2017 highs.
With this massive price decline, many may trigger tax losses by offloading their cryptocurrency holdings. However, reporting such losses in their tax filings could bring issues from the IRS come tax season in 2019. Commenting on this possibility, Sarah-Jane Morin, a San Francisco-based attorney said:
If I were in those shoes, I’d think about my past transactions and whether there were gains. If I had gains, and I was not willing to go back and amend my return, I might not do anything that would trigger a loss. But you should just be reporting it correctly, so you’re not playing audit lottery.
Most Folks Aren’t Tracking Market Value and Cost Basis
Considering the nonstop volatility of cryptocurrency assets, it can be a chore to monitor the price changes that occur over every period. The IRS classifies cryptocurrencies as property. Thus, investors need to keep an eye on the difference between the cost price and the price at which they sold or traded it.
For many investors, the above can constitute a lot of work. Most folks aren’t exactly tracking that kind of information, says Morin. Thus, it is unsurprising to see many retail investors, not including virtual coin transactions in their tax filings.
IRS Urged to Create a Simpler Cryptocurrency Tax Framework
The IRS for their part also needs to simplify the virtual currency tax reporting paradigm. The only available published tax framework from the agency relating to virtual currencies came in 2014. However, at the start of the year, the IRS sounded several warnings about the consequences of not fully reporting cryptocurrency ownership.
For one thing, many stakeholders would prefer a more detailed set of guidelines for filing cryptocurrency taxes. According to Morin, investors would do well to see a bit of compliance rather than not reporting any cryptocurrency holdings whatsoever.
Do you agree that the cryptocurrency tax provisions in the United States are confusing? Let us know your thoughts in the comment section below.
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