Apr 19, 2022 - Economy

Crypto taxes remain a headache

Illustration of a calculator with bright green text reading "crypto" on the screen.

Illustration: Gabriella Turrisi/Axios

The deadline for Americans to file their tax returns this year is April 18, and crypto taxes remain unpleasant.

Why it matters: U.S. regulators and lawmakers have yet to introduce significant new rules or regulations when it comes to taxing digital assets.

What they're saying: "[In 2021] a lot of the major players… they showed an incredible amount of interest in helping people figure out their crypto taxes," CoinTracker head of tax strategy Shehan Chandrasekera told Axios.

  • "But still, there’s a huge gap between the number of people who have crypto and the number of people who have filed taxes on crypto in the U.S.," he added, pointing to a lack of awareness and information as the main reason.

State of play: The last time the Internal Revenue Service said anything about cryptocurrency taxes was in 2019 when it issued new guidance on certain issues (its first since 2014) and added a cryptocurrency question to its forms.

  • In short, for the purposes of U.S. taxes, cryptocurrencies are treated as property and taxed on their capital gains.
  • As part of the infrastructure bill package that passed in Congress last year, cryptocurrency exchanges will be required to issue 1099-B forms to their U.S.-based customers and the government starting in 2023 (though experts say that, in practice, that's more likely to begin the year after).
  • An ongoing court battle, Jarrett v. United States, could determine whether staking (earning tokens for acting as a transaction validator in proof-of-stake blockchains) is taxed as income.

Between the lines: "The nuance that makes crypto extra complicated is that many people don't know their cost basis when they acquire the asset," Compound CEO Jordan Gonen, whose company helps tech workers manage their finances, tells Axios.

  • Many people don't get in the habit of keeping detailed records of their crypto transactions necessary to calculate their gains and losses, though a number of software tools for this have cropped up in recent years.

The intrigue: The boom in non-fungible tokens in the last year could be the tax surprise many didn't think of amid the euphoria of purchasing a fun digital token.

  • Yes, NFTs are taxable — specifically, the sale of cryptocurrencies like ether to make the purchase (and the purchase of cryptocurrencies when selling the NFT) is a taxable event.
  • Airdropped tokens are another tricky event as the owner receives them for free. In 2019, the IRS said that airdrops, such as acquiring a new cryptocurrency following a hard fork, are treated as ordinary income.
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