Why Cryptocurrency Exchanges Should be Required to Provide Users With 1099s and Other Such Forms
In my opinion cryptocurrency exchanges should have reporting requirements. Tallying profits and losses in crypto trading is too complex for the average taxpayer, exchanges should provide this service.
What do you mean by reporting requirements? When you trade with a broker like Charles Schwab you get official forms which can be submitted to the IRS which tally your profits and losses. This multi-billion dollar company is in charge of tallying profits and losses for its users, from there investors can decide to do their own reporting.
What is the point of reporting requirements? Right now the IRS demands reporting from individuals which is too complicated for individuals to do. The other entities with skin in the game who have the data and capital to do the reporting are 1. the IRS and 2. exchanges. Thus, it would be really super helpful if they did reporting.
Are there any reporting requirements now? I don’t think there are reporting requirements, Coinbase has attempted to report some basic info, but at the moment it isn’t helpful to individuals (just to the IRS and the exchange). Essentially Coinbase tells the IRS the gross amount you traded, but nothing else. Meaning the IRS will come for you, but neither the IRS nor the exchange offer any substantial help.
Why implement reporting requirements? Reporting requirements would take what is an impossible task for crypto investors and create a automatic and uniform process for exchange and the IRS. It keeps everyone honest and takes a burden off those who can’t deal with the burden. It would also help users track their profits and losses in a year so they actually knew where they stood.
Bottomline: Right now the individual trader has reporting requirements which are impossible. This will only cause problems. They only entities who have the means to handle the reporting are exchanges and the IRS… like with securities brokers and exchanges, it makes sense for the crypto brokers and exchanges to handle reporting in a uniform and automated manner.
Moving forward with reform: In general we need tax reform for the average crypto trader. For the average Joe or Jane it really makes little sense to tax them on cryptos floating around in some exchange account unless they use those cryptos as money or deposit fiat back into their accounts. There is more than one way to offer this. But rules that already exist 1. like-kind, 2. wash rule, and 3. reporting requirements for exchanges would solve 99.9% of the issues. Without like-kind exchange, the wash rule, and reporting requirements many traders will have their lives ruined by crypto and will be unable to pay their tax bills. We expect the average person to tally up crypto profits and losses (near impossible), to treat every trade between coins as being the same as cashing out (absurd), and then we won’t recognize trades back to a crypto within 30 days as effectively being in that crypto the whole time (needlessly harsh). Crypto traders who got into crypto in 2017 have already been ruined, most just don’t realize it yet, they need relief, not un-payable tax bills, fees, and the risk of jail time.