April may be the time for spring and showers, but it also brings with it, unfortunately, tax reporting deadlines in both the US and the UK. If you have invested or traded in cryptocurrencies or received them in any way for services rendered, then you could be staring at a tax liability that you never had anticipated. A recent Twitter survey, however, suggests that a vast majority of investors will look the other way to avoid the issue. The primary poll revelation: “81% of all respondents replied with “not a chance” when asking what the status of their crypto taxes were.”
Tax authorities across the globe have grappled with what to do in this area for the past few years. Some agencies have created publications, set up live-chat help desks, and inserted specific instruction pages on their respective websites with the expressed purpose of informing the public of how to report income or gains and losses from their crypto transactions. Regardless of these well-intentioned efforts, the definitions remain confusing, and the examples given often miss the mark. You are often directed to consult your local tax professionals, but they are just as confused as you are.
The Twitter poll was the creation of a crypto-focused YouTube personality by the name of “Crypto Wendy O”, who also advised taxpayers that they could avoid the potential of fines, penalties, and interest by filing an extension, if they had yet to file their tax returns. Her poll, oddly enough, only queried people who had not filed their tax return, judging from the possible questions on the survey. In addition to the 81% of “not a chance” types, other survey results were:
- “5% said they “will start next week”;
- 14% of crypto investors reveal they are “currently doing them.”
As “Crypto Wendy O” points out, you need not itemize every single trade. You may summarize the net gains and then net losses to arrive at your net gain or loss figure. Most taxing jurisdictions require capital gain/loss reporting, but even though Crypto Winter may have produced losses, if positions were closed in the negative, you may still need to file those losses in order to carry over their benefit to a future reporting period. In that way, you may net them against future gains. In some cases, you may be able to carry them back to 2017 and get a refund on taxes paid in a prior period.
If you are in the mining business or are paid for services rendered in cryptocurrency, then your issue is with reporting income correctly in the tax period earned. Transfers, token swaps, are other “wash sale” type transactions are more complicated. Once again, you may want to consult your local tax authority for assistance or speak to a tax professional for advice.
Avoiding taxes in line with specific statutes is not a crime, but evading taxes can result in a variety of punishments, the least of which are penalties and interest. If you think that you are in the clear because you never received an official tax reporting document from your exchange, you might want to think again:
Exchanges are actively working with the IRS to supply customer data, which can and will be used to compare against reported earnings or losses. Those that fail to report properly are at risk of an audit, or worse.
Depending on your country of residence, there are other assistance and support services that may also be available. A simple search on the Internet may reveal them. Software developers are also playing a game of catch-up, so that their tax preparation programs include crypto schedules and worksheets, too, but that again depends upon your locale. In the US, Bitcoin.tax is a website that might surprise you with how much information can be processed to hand you completed forms and schedules to assist in the tax reporting process.
Reporting your crypto tax items can be confusing, but it should not be as difficult this year, since there are plenty of support services that have sprung up to assist you. Otherwise, you might want to remember this recent remark on a tax assistance website:
Crypto investing is already risky due to it being an emerging market and a technology that isn’t yet fully utilized at scale, but avoiding paying taxes is outright playing with fire.