Preliminary reports show that only a small percentage of tax filers have reported cryptocurrency gains or losses. However, it is still early in the tax season.
According to Fortune, and mirroring other sources who are all citing preliminary data from Credit Karma as reported on Reuters:
“Early data from one popular tax preparation service shows that only a minuscule proportion—just .04%—of U.S. tax filers have reported their cryptocurrency gains and losses to the Internal Revenue Service so far this year. That’s far fewer than the 7% of Americans who are estimated to own Bitcoin or another cryptocurrency, and who are likely to owe taxes to the IRS on those investments.”
The thing is, this isn’t necessarily a foreshadowing of what is to come (hopefully). Instead, it is likely better explained with simple logic.
Consider the following points:
- It isn’t April 15th yet.
- Crypto taxes are insanely complicated, and most people will need to hire a tax professional to help them report.
- Regardless of who is doing what work, downloading one’s history of trades and figuring everything out and filling out the forms takes time.
- Cryptocurrency was up last year and is down this year. If you owe taxes on crypto gains from last year, then it can make sense to wait until closer to the due to date to pay up (so you, you know, actually have money with which to pay taxes).
- Some investors would be paying quarterlies (pretty sure the Credit Karma data is looking at early income tax filers filing annual taxes only).
- Some investors would have owned crypto and made gains, but not made enough to need to report capital gains.
- Early income tax filers are reporting early to get credits and refunds. Some crypto traders who have to report would potentially not be in the group who gets refunds and credits while those in the group who need to file early could very well not have made enough in crypto trading to need to pay capital gains taxes (although they arguably should have reported crypto holdings and trades anyway).
If you put all that together with the fact that there are probably many Americans who don’t know that they owe taxes on crypto trades, you can see how we get a .04% number from Credit Karma.
There will probably be a giant headache caused by crypto and taxes this year because many people don’t know that they have to claim crypto and file. There are many reasons why those who traded crypto wouldn’t have filed and reported their crypto earnings yet. Probably the biggest reason that people do not file taxes on crypto is “because it is insanely overly complicated and there has been very little guidance aside from that one document from 2014.”
Learn more about cryptocurrency and taxes (sort version; you have to report your crypto and pay taxes on profits from crypto to crypto trades).