The explosion of cryptocurrencies has helped many investors rake in cash. and now the tax collectors want their fair share.
Cryptocurrencies are treated as property, meaning investors will face tax implications when selling, trading one form to another, or using the gains from the investment to purchase somethings, like a Tesla.
In a basic scenario, if you buy 1 BTC for $10,000 in January and sell it for $30,000 in May, you have a taxable gain of $20,000.
Depending on the country, type of trade, and holding period the taxable amount is likely to changes. For example in the US, the Biden Administrations’ new capital gains taxes will result in a tax of up to 50% on profits from crypto for anyone earning over $1 million.
To find tax cheats, the IRS has obtained two new summons on the payments company known as Circle and the crypto exchange Kraken to turn over records of any customer who had over $20,000 in transactions since 2016.
The searches were justified based on the IRS findings of its Coinbase campaign which resulted in more than 1,000 amended tax returns from crypto holders with some who had accounts at Kraken and Circle.
Any investor that doesn’t comply hoping on getting a free tax ride will be liable to large penalties and criminal prosecution.