Most governments have yet to develop comprehensive taxation policies for cryptocurrencies and most investors are beginning to feel the pressure of such ambiguity in the current fiscal, in filing their taxes. On the other hand, governments such as in France have proposed changes to the capital tax gains on cryptocurrencies from 36.2% to 30%, bringing these assets on par with ‘movable assets’ which are taxed flat 30% in the country.
The problem is currently the most challenging in nations such as the US. A crypto tax-case which has gone viral is that of a college student who started his portfolio with $5,000 in ETH in May 2017 which led him to an $880,000 by end of December. However, drastic fall of prices of cryptocurrencies beginning in January 2018, followed by bad investments in ICOs saw the students’ portfolio value down to a $125k. Unfortunately for the student, his tax liability for 2017 is $400,000.
Shockingly, the basis of this tax amount is the net profit of $875,000 which the student made because of the peak prices cryptocurrency markets had achieved, for an investment of $5,000.
However, for novice investors such as the anonymous-student on Reddit who attached his taxing-woes for advice revealed that 1099-K form which Coinbase reported earlier in Spring.
The student, in the first instance, was unaware that crypto-to crypto trading also required taxes to be paid, for he never “cash out to fiat and transfer any USD into my bank accounts from these trading’s.”
Bitcoin investors in the US when using exchanges such as Coinbase are automatically taxed. This is the result of a January legal tussle between the US Internal Revenue System (IRS) and Coinbase which turned out to be a very expensive battle for the crypto exchange. However, the outcome of the legal battle was that it soon began to include tax tools into the trading platform and forwarding the Form 1099-K to the authorities. The tools allow the exchange to view gains and losses, trading activity and filing of taxes.
Coinbase has reiterated that the gains on digital currency sales via exchanges are taxed by the US government, in lieu of the IRS guidelines for digital asset gains reporting. Hence, to be compliant with the latest guidelines, Coinbase has updated the tax tools ensuring reporting are simplified on the platform.
The 1099-K of the current case was forward by Coinbase in early 2018. The form included calculations with respect to the gains made by the taxpayer through the ‘calendar year.’