Without taxes, governments could not provide necessary things like roads, public water systems, means of distributing electricity, public programs, and countless other things. As such, taxation is necessary to fund these things.
Denmark, Norway, and Sweden are all ranked among the top ten happiest places to live on planet Earth. Total taxes, expressed as a percentage of gross domestic product, total to 46, 47, and 44 percent, respectively, for the above three countries.
The United States is not among the happiest, nor does it have one of the highest tax rates. However, the Internal Revenue Service’s mythical Uncle Sam cares very much about bringing in as much tax revenue as possible. As such, the IRS is likely to begin regulating and taxing cryptocurrencies as soon as it possibly can.
Internal Revenue Service recently requested data from Coinbase
Individuals purchase cryptocurrencies through exchanges like GDAX, Coinbase and other smaller platforms. However, most people do not get paid in Bitcoin like they do with fiat currencies, and are therefore forced to turn to such exchanges to get their hands on Bitcoin and company.
Recently, Coinbase complied with a request from the IRS to fork over extensive transaction and personal information on upwards of 13,000 users. The IRS formally asked Coinbase to provide them with such records in November 2017.
Even though Coinbase initially fought the request, the company had little defense against the ever-powerful IRS’ clout.
The IRS has to do something to tax crypto transactions
While Bitcoin’s blockchain does not provide anonymity to its users, other cryptocurrencies do. However, because Bitcoin is the most popular and valuable cryptocurrency, the Internal Revenue Service is vested in passing legislation to tax that specific cryptocurrency as soon as possible.
Statistics indicate very few American taxpayers actually reported capital gains on cryptocurrencies like Bitcoin. Of the roughly 250,000 people that have submitted tax returns through Credit Karma, less than 100 reported cryptocurrency transactions. In today’s tech-friendly climate, it almost goes without saying that many more than 100 individuals actually engaged in such transactions, or at least brought home gains from holding Bitcoin and other cryptocurrencies purchase before the 2017 tax year.
Here is how the IRS knows
According to Coinbase, roughly 14,000 individuals engaged Bitcoin transactions totaling at least $20,000 in calendar year 2017. Although not every individual submits their tax returns through Credit Karma, this figure still suggests that many incurred gains and losses that were not reported to the IRS.
While it may seem as though Uncle Sam is watching, he most certainly is. Therefore, it would benefit those who do invest in cryptocurrency to report their gains to the IRS. Otherwise, the few may ruin the experience for the many, and make trading far more difficult than it was once predicted to be.