Text / 31QU Ganoderma lucidum

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Buy and sell cryptocurrencies, remember to pay taxes

Recently, a Reddit user named "U/q928hoawfhu" received a letter in which he was informed by the Internal Revenue Service (IRS) that he may not have correctly reported cryptocurrency-related transaction information.

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▲ Excerpt from IRS Letter 6174-A

At the beginning of this document, "IRS Notice 6174-A" is marked in large characters. He said with emotion, "This situation will soon be faced by everyone (Just a heads up to everyone for what's coming.")

The experience of "U/q928hoawfhu" is not an isolated case. On July 26, the IRS issued an official announcement stating that it had sent letters to tens of thousands of taxpayers regarding the tax payment of cryptocurrency transactions. These citizens either did not pay taxes truthfully, or Not reporting its transaction information properly.

It is understood that there are three types of these educational letters, namely Letter 6173, Letter 6174, and Letter 6174-A. The 6174-A received by Reddit users is a "not so soft notice" submitted by taxpayers. There may be false positives in the transaction report, but if the recipient really did not fill it out correctly and is eventually identified as a non-compliant taxpayer, the IRS may take subsequent action.

As for the other two types of documents, letter 6174 is a soft notice, which just informs taxpayers that they may not have reported information, and it is enough to make up for it later, and the IRS does not intend to take follow-up actions; letter 6173 is the most stringent, not only requiring taxpayers who have received Suspected violations must be responded to and followed up by the IRS to determine whether the taxpayer is in compliance.

Taxpayers who do not properly report income tax on cryptocurrency transactions will be liable for taxes, penalties and interest, and in some cases, taxpayers may be subject to criminal prosecution, the announcement said.

"Taxpayers should take these letters seriously, review their tax returns, correct prior transaction information, and pay back taxes, interest, and penalties," IRS Commissioner Chuck Rettig said in a statement. He added that corresponding cryptocurrency tax guidelines are expected to be published in the near future, the statement said.

Since then, the door to taxation of cryptocurrency transactions in the United States has opened, and the IRS has also begun to try to collect taxes on cryptocurrency investors.

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Cryptocurrency transactions are not encrypted

As early as 2014, the IRS proposed that “information for cryptocurrency transactions needs to be reported as a tax reference.” However, given that it was not clear, in the following years, there has been little progress in the taxation of cryptocurrencies. Users have no idea how to pay taxes. The impact of taxes and non-payment of taxes is also unclear.

For cryptocurrency investors in the United States, they may know that they need to track the information of buying and selling currencies, and also need to report and pay taxes on the transaction income, but in fact, the IRS has not issued specific rules to explain which methods are available The cost basis used to calculate gains and losses.

However, facing the rapid growth of the cryptocurrency market year by year and the potential huge tax revenue, the tax agency will not stop exploring.

The IRS was the first to attack the exchanges.

In November 2016, the IRS submitted a petition to the court, hoping to obtain the identity and transaction history information of users of the cryptocurrency exchange Coinbase platform. After many contests, the court agreed to the IRS' request. In July of the same year, the US Internal Revenue Service announced the identification of five compliance activities, including virtual currency tax issues.

On May 16, in response to a request for further guidance on cryptocurrency taxation, Charles P. Rettig made it clear that the IRS is developing cryptocurrency taxation guidelines.

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▲ The commissioner replied that the IRS is developing cryptocurrency tax guidelines

According to the response, the guidance being developed by the IRS covers three major issues: "acceptable costing methods, acceptable distribution schemes, and tax treatment of forked coins."

Although users trade cryptocurrencies and fill in the information in an independent way, in fact, since most transactions are carried out through centralized exchanges, the whole process is not "encrypted".

As early as late 2017, Coinbase had to satisfy the IRS's information sharing requirements. After being ordered by the court to disclose information, Coinbase turned over the information of approximately 13,000 customers (about 0.1% of its total customers) in February 2018. , including customer ID, name, date of birth, address, and historical transaction records from 2013 to 2015.

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On the other hand, surveys conducted by the IRS support evidence that fear of third-party information and audits are the main drivers of taxpayer voluntary compliance, in addition to their own factors.

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Are cryptocurrencies going to be taxed?

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▲ In a questionnaire survey, more than half of the people believed that the regulators would not catch the handle

In November last year, a Reddit netizen posted that he was a college student living in California. In 2017, when the price of Ethereum was only $50, he invested $5,000. After just a few months, Ethereum went all the way. up to $1200.

At that price, he earned about a 25-fold return on his investment, with a net profit of more than $800,000 on his investment. According to him, he did not cash out the proceeds into U.S. dollars and deposit them in a bank account. According to IRS regulations, he must pay taxes on this basis. It was later learned that his tax amount in 2017 was about 400,000 U.S. dollars.

But what is frustrating is that after participating in some ICOs in 2018, after some tokens plummeted and returned to zero, his overall investment income was only 125,000 US dollars, and he could not pay 400,000 US dollars in taxes at all.

The initial floating profit eventually became a tax nightmare for young investors.

Interestingly, on July 8 this year, an accountant disclosed a 181-page PPT on Twitter, which introduced how IRS criminal investigators discovered multiple potential cryptocurrency tax frauds. The IRS subsequently confirmed the authenticity of the documents.

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▲ Cryptocurrency PPT produced by IRS, the download link is at the end of the article

For this PPT, the accountant explained that the IRS not only focuses on exchanges, but also plans to use interviews, open source searches, electronic monitoring, social media searches, etc. to find bank, credit card and Paypal transaction records, and even Facebook, Twitter, and other Social media, investigate relevant companies, and analyze transaction records to determine whether there is tax evasion information.

At present, there are some third-party platforms or tools specially designed for cryptocurrency tax calculation, such as bitcoin.tax, CryptoTrader.Tax, cointracking, CoinsTax, etc.

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is becoming trendy

Benjamin Franklin once said, "Nothing can be said to be certain in this world, except death and taxes".

According to incomplete statistics from 31QU, at present, taxation has long been a financial topic that tax agencies of various governments focus on. Tax agencies in dozens of countries, including the United States, Japan, the United Kingdom, South Africa, Switzerland, and France, have already Or tax policies related to cryptocurrencies are being introduced one after another.

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▲ List of tax policies for cryptocurrencies in various countries around the world

Among them, cryptocurrency payment in Japan has developed the most rapidly. In the beginning, as long as users used Bitcoin to consume, they had to pay an 8% Bitcoin consumption tax. With the new version of the consumption tax law coming into effect on July 1, 2017, Japan canceled the Bitcoin consumption tax.

However, this does not mean that users do not have to pay taxes. According to Bloomberg, after stipulating that capital gains from Bitcoin transactions are a kind of "miscellaneous income" in 2017, the Japanese Internal Revenue Service stated that cryptocurrency investors paid taxes on February 16, 2018. When submitting the annual tax return between March 15th and March 15th, declare your own cryptocurrency trading profits at the same time.

And this part of the profit needs to pay taxes ranging from 15% to 55%, of which the highest tax rate applies to cryptocurrency investors with an annual income of more than 40 million yen.

According to previously issued guidelines in the United Kingdom, encrypted assets are considered personal investments and are subject to capital gains tax. If they are derived from mining and airdrop activities, they are required to pay taxes in accordance with the current income tax and national insurance contribution laws.

Of course, in addition to countries that charge a high percentage of taxes on cryptocurrency transactions, there are also countries that are tolerant of cryptocurrency transactions.

It is reported that Singapore, Malaysia, Portugal, Belarus and other countries have adopted a certain degree of tax exemption policy for cryptocurrency transactions.

Among them, Belarus stipulates that most of the profits of users related to cryptocurrencies (including trade and mining) are tax-free until 2023, and the policy is very loose.

In fact, the attitudes of governments towards cryptocurrencies can be described as very contradictory.

On the one hand, the rapid rise of cryptocurrencies has forced regulators to bring cryptocurrencies into a legal and compliant world; on the other hand, the increasingly obvious differences between cryptocurrencies and traditional financial products have constantly reminded them that only new way for better regulation.