Lawmakers Ask IRS For Clarity on Crypto Tax Reports, Better Regulating Industry
Lawmakers from the United States House of Representatives have issued an open letter to the Internal Revenue Service (IRS), requesting additional clarity on tax laws surrounding crypto such as Bitcoin and Ethereum.
The open letter was addressed to acting IRS commissioner, the honorable David Kautter on behalf of Congressmen David Schweikert (R-AZ), Brad Wenstrup (R-OH), and Darin Lahood (R-IL), and members of the Committee on Ways and Means Lynn Jenkins (R-KS) and Kevin Brady (R-TX).
Current Tax Laws Confusing
The Republican-centric group of U.S. government lawmakers asserts that tax laws covering crypto are confusing, convoluted, and that “comprehensive” clarity and guidelines are necessary for taxpayers to properly report their earnings.
Under current U.S. tax law, cryptocurrencies are treated as property, the same as real estate transactions, and are subject to capital gains tax. Capital gains tax rates vary depending on how long the property was held.
Assets held for one year or less are taxed at the same rate as ordinary income, ranging from 10% to as much as 37% for individuals earning over $500,000 during the tax year. If an asset is held longer than one year, it’s subject to long-term capital gains tax rates of 0%, 15%, and 20%.
Because crypto are treated as property individuals can also report capital losses – in this situation losses up to $3,000 per year can be applied to offset other capital gains or income, and anything over $3,000 can be carried-forward into following years. This is of particular benefit to investors that “got in” around the cryptocurrency market peak last December, who can offset some of their earnings with the losses their investments have experienced.
The current tax laws have been in place since March 2014, and Congress says the IRS has had “more than adequate time” to update its cryptocurrency tax strategy. The last time a U.S. department called on the IRS to alter its tax laws governing cryptocurrencies, was in May 2017, to which the IRS commissioner responded calling Notice 2014-21 “preliminary guidance.”
Over four years since the initial laws have been put in place, and the only change since then only further complicated things. Under previous tax law, personal property such as cryptocurrencies could be exchanged for other like-kind property without a sudden tax burden. This was especially helpful for crypto investors that trade one type for another. However, that section was removed, only preserving a reference to real estate and not personal property. This means every single crypto trade from one token to another, should be treated as the sale of property, and is subject to capital gains taxation.
The IRS is actively taking interest in cryptocurrency investors specifically, and issued a memo on March 23 of this year, warning investors to be sure to report cryptocurrency earnings on their tax returns. Despite the lack of clarity around cryptocurrencies, failure to properly report earnings could lead to costly tax penalties.
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