The latest word coming out of the IRS is that a major crypto tax overhaul may well be on the horizon. At the very least, it’s clear that the Internal Revenue System is coordinating efforts to ensure that active crypto traders are put under the spotlight – regarding annual taxes relating to crypto gains and/or losses.
It’s clear that much of this new renewed focus is coming from the White House. As Joe Biden is looking to raise more money for his ambitious economic reform agenda, the current “tax gap” has come under scrutiny. The amount of ‘outstanding’ tax that is owed by the general public in the US constitutes a massive amount of money. One of the main factors, according to the state and IRS, that continues to widen the tax gap can be attributed to the crypto market. Thus, the latest tax policies coming into effect are no surprise.
Up until now, it’s been extremely easy to fall into the category of being a ‘crypto tax avoider’. Much of this can be attributed to the fact that the IRS has been vague in their implementation of crypto tax requirements on relevant forms. Another factor that has led many to issue tax returns that are not 100% correct comes down to the fact that it’s difficult to calculate annual crypto returns or losses.
However, the IRS continues to focus its attention on noncompliance across the board. Active measures include summoning crypto exchanges to release information relating to taxpayers who have failed to meet tax obligations. The ability of the IRS to uncover tax avoidance by individuals who trade in cryptocurrency has improved ten-fold in recent years. A theme that will only continue as the crypto industry expands into the private and public sector.
With the upcoming 2022 budget proposal, it’s possible that a string of new crypto tax reporting requirements will come to the fore. These measures will make it a lot more difficult for crypto traders to buy and sell currencies without reporting it. One of these measures will require crypto exchanges to release data of individuals who trade in excess of $600 worth of crypto on an annual basis.
Another proposal is set to increase the maximum tax rate relating to long-term capital gains. This increase will be raised from the current rate of 23.8% to a much higher rate of 43.4%. Currently, crypto gains are being taxed in line with gains on any other type of ordinary asset. This proposal will eliminate the residing difference between the two. It’s also important to bear in mind that such a proposal will be backdated. All in all, the future tax situation relating to crypto activities in the US is set to undergo a massive change.