The U.S. Internal Revenue Service (IRS) has cleared up some confusion about how cryptocurrency transactions are taxed, particularly regarding like-kind exchanges and promotional airdrops. As the tax agency intensifies its enforcement efforts, more people are seeking the best tax software to help them.
Also read: Tax Guide: What Crypto Owners Should Know
Pre-2018 Like-Kind Exchanges
The latest IRS cryptocurrency tax guidance has raised a number of questions. Besides issues surrounding hard forks and airdrops, Bloomberg reported that tax practitioners had questions regarding how cryptocurrency transactions made before 2018 are taxed. This was due to the tax overhaul in December 2017 which enables taxpayers to postpone paying tax on the gain of a sale if the proceeds are reinvested in similar property.
Suzanne Sinno is an attorney in the IRS Office of Associate Chief Counsel (Income Tax and Accounting) who worked on the new crypto guidance. She explained at the American Institute of CPAs conference in Washington, D.C., on Wednesday that taxes on like-kind exchanges of cryptocurrency cannot be deferred, even for transactions that occurred before 2018. She clarified:
It is the agency’s position that like-kind exchange principles were never applicable to cryptocurrency.
The confusion concerns Section 1031 like-kind exchanges, which beginning Dec. 31, 2017, “applies only to exchanges of real property held for use in a trade or business or for investment, other than real property held primarily for sale,” the IRS website explains. “Before the law change, section 1031 also applied to certain exchanges of personal or intangible property.”
Another ambiguous area emerging from the new IRS crypto tax guidance is promotional airdrops where companies give away free coins for marketing purposes. Christopher Wrobel, another attorney in the IRS Office of Associate Chief Counsel (Income Tax and Accounting), confirmed that the revenue ruling does not apply to promotional airdrops, Bloomberg conveyed. He elaborated:
The IRS hasn’t yet decided whether such promotional airdrops should be treated as taxable.
The tax agency issued the latest cryptocurrency tax guidance in October to supplement its previous guidelines published in 2014. The new guidance states that “When you receive cryptocurrency from an airdrop following a hard fork, you will have ordinary income equal to the fair market value of the new cryptocurrency when it is received … provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency.”
Growing Demand for Good Tax Software
The IRS has been ramping up tax enforcement efforts in the crypto space. For example, the agency sent out over 10,000 letters to crypto owners in July reminding them of their tax obligations. Claiming to have new tools at its disposal, the IRS is also collaborating with other countries’ tax authorities to identity crypto tax evaders. The agency’s tax collection efforts have led to increasing demand for good software programs that can help keep track of cryptocurrency transactions, calculate tax liabilities, file returns, and claim deductions. News.Bitcoin.com recently provided a list of useful tax tools for crypto owners.
Several tax preparation platforms reported increased numbers of visitors in the days following the IRS guidance and enforcement announcements. Beartax CEO Vamshi Vangapally revealed that traffic to his platform more than quadrupled to 1,300 visitors. Tokentax cofounder Zac McClure saw a similar spike, noting that the news got people interested even for those who were not contacted by the IRS.
Lawyer Katya Fisher said a growing number of her clients are using or looking for software to help them meet their crypto tax obligations. “We’re seeing significant growth because the market is demanding it,” she was quoted as saying. “One of the biggest complaints I get from crypto traders is, ‘I have all these trades with different cryptocurrencies — how am I supposed to keep track of it?’”
Crypto tracking and reporting platform Cointracking is also seeing higher traffic. The site’s monthly registrations total 10,500 users on average, 27.3% of whom are in the U.S., CEO Dario Kachel detailed, adding that the average monthly page views top 2.4 million, with the U.S. representing 29.1%. However, between July 26 and Aug. 25, registrations nearly tripled to 29,700 users and almost 50% of them are U.S.-based. The site’s page views also jumped to 7 million during that time, with 42.2% coming from the U.S.
What do you think of how the IRS taxes crypto transactions? Let us know in the comments section below.
Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Images courtesy of Shutterstock.
Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.
The post IRS Dispels Crypto Tax Confusion appeared first on Bitcoin News.