Is US Lossing $18 Billion On Crypto Taxes Escape? See What IRS Has to Say
President Joe Biden asserted in a tweet that closing “tax loopholes that help wealthy crypto investors” would bring in $18 billion for the government, criticizing Republicans for their budgetary objectives. This comment was criticized by many in the crypto community for being inaccurate, but the tweet is an example of a larger trend: the federal government cracking down on crypto tax avoidance.
Legislators and tax officials are no longer unaware of the cryptocurrency ecosystem since it has become mainstream. Since cryptocurrencies are now more widely used than ever, the IRS (International Revenue Service) is paying greater attention to cryptocurrency transactions. Transactions using cryptocurrencies frequently fall within the tax code’s “grey area.”
Since the IRS has not yet provided comprehensive advice on NFT and DeFi transactions, many investors have used aggressive tax reporting strategies to reduce their tax obligations.
For the first time, the IRS provided specific guidelines for cryptocurrency investors in March 2023 when it published guidance for NFTs, outlining the situations in which NFTs are regarded as collectibles and subject to the appropriate taxes. In the upcoming 12 months, the IRS is expected to develop a new operating strategy for handling cryptocurrencies, according to Julie Foerster, director of digital assets for the IRS. Additionally, the federal government wants to use laws to shut down any “loopholes” that have existed for Bitcoin investors.
Under the guidelines, the IRS considers cryptocurrencies to be “property.” Crypto taxes are probably due if you buy, sell, or exchange cryptocurrencies. Form 1040 Schedule D must be used as your crypto tax form to reconcile your capital gains and losses, together with Form 8949 if necessary, in order to report your cryptocurrency activities.
The IRS now uses contractors like Chainalysis to examine the blockchain and connect “anonymous” wallets with verified investors. These collaborations are thought to have assisted the IRS in seizing more than $10 billion worth of Bitcoin. The IRS will probably continue to pay close attention to the Bitcoin market in the years to come. Although the IRS has been referred to be an organization that is “underfunded” in the past, this is changing as a result of the agency receiving significant cash lately from the Biden Administration. The organization received increased money of $80 billion under the Inflation Reduction Act of 2022 over the following 10 years.
Although it’s unclear how much of this money would be used to particularly combat crypto tax evasion, IRS commissioners have identified cryptocurrencies as a significant factor in the yearly tax deficit in the United States. As a result, it becomes sensible to predict that more IRS budget would result in more monitoring of bitcoin investors.
