New bitcoin investors have been enjoying the profits they’ve made on their crypto assets. Yet, it seems they may have forgotten one small issue: paying their tax.
According to a report from CNBC, first-time investors are quickly waking up to the fact that they have to pay taxes on their trading profits, ahead of the looming April tax deadline. As a result, many are selling their coins, which may also be impacting its market price.
Cathie Wood, CEO & CIO at ARK Invest, explains by saying:
For younger people who don’t have taxes top-of-mind, or have never invested before, they’re shocked. People had huge gains last year, and they don’t have enough in crypto to pay those.
At the end of December, bitcoin saw its price rise to within touching distance of $20,000 for the first time. Naturally, veteran and newbie holders had reason to celebrate. However, after the party had died down, the realisation that investors would have to file their cryptocurrency taxes quickly surfaced.
Vincenzo Villamena, founder and CEO of OnlineTaxman.com, said:
I see people that bet the farm on it. They’re stuck with a large tax bill and they’re doing payment plans, or they’re selling off crypto.
In November, San Francisco-based cryptocurrency exchange Coinbase lost a lawsuit against the Internal Revenue Service (IRS). As a result, it was ordered to hand over 14,000 customer records between 2013 and 2015, as the agency sought to determine whether users are deliberating avoiding paying their tax.
Now, with the tax deadline getting ever closer many newbie investors may be trying to figure out how they can avoid reporting on the gains they have made. According to Villamena, there is the misconception among new investors that trading cryptocurrency is a ‘like-kind exchange,’ which is comparable to an ETF, which also happens to be tax-deferred. However, that’s not the case at all.
Some people cling to the ‘like-kind exchange’ argument, and are not willing to accept the reality of if they make a lot of money, they owe tax. Newbies on this don’t want to pay, and they’re trying to figure out if they can be anonymous.
Featured image from Shutterstock.