A majority of American cryptocurrency investors have not yet reported their crypto investments to the Internal Revenue Service, according to Credit Karma, a startup that enables free credit score checks. The service says less than 100 people have reported gains from cryptocurrency investments out of the 250,000 Americans who have already filed their federal tax returns this year through Credit Karma.
That’s a pretty small amount when you consider the survey last month by Qualtrics, a credit score startup. The survey found that nearly 57 percent of 2,000 respondents reported some form of gains from cryptocurrency investments. (See also: Bitcoin Tax Guide: An Introduction.)
The IRS treats profits from crypto investments as capital gains. The delay in reporting cryptocurrency taxes should not be cause for worry, according to Jagjit Chawla, general manager for Credit Karma Tax. According to him, Americans with more complex tax situations file closer to the tax deadline of April 17. “However, given the popularity of bitcoin and cryptocurrencies in 2017, we’d expect more people to be reporting,” Chawla said.
Bitcoin’s price shot up from approximately $990 at the beginning of 2017 to a peak of almost $20,000 in December. Cryptocurrency markets experienced a similar surge, rising from $18.3 billion in January 2017 to $610 billion by December 31st, on the back of unprecedented interest from media and an ever-rising number of scandals and hacks. (See also: Bitcoin: What Does 2018 In Store?)
Confusion Over New Asset Class
Because they are a new asset class and their regulatory status is unclear, cryptocurrency investments have become a problem area for the IRS. According to the agency, only 802 people reported profits from cryptocurrency investments in 2015. That contradicts the 14,000 users figure for users who bought, sold, or transferred bitcoin worth more than $20,000 using Coinbase.
A CNBC article on the same topic quotes cryptocurrency trader Brandon Williams as saying it took him “at least 3 to 4 hours” to record gains and losses every fortnight because of the market’s volatility and swings. According to him, it would make more sense to treat cryptocurrencies as currencies rather than property. Williams is planning to wait until April until “there’s more visibility and definition from the IRS about what would be acceptable.”
According to Perry Woodin, CEO of Node40, a Software-as-a-Service tax agency for cryptocurrencies, tracking the cost basis and days held for cryptocurrencies is difficult because of crypto market volatility. (See also: Bitcoin Has A Regulation Problem.)
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.