Crypto Tax Reporting Rules for $10k+ Transactions Now in Effect
The controversial crypto tax reporting requirements within the bipartisan infrastructure bill signed into law in 2021 are now in effect as of January 1.
These new Internal Revenue Service (IRS) rules mandate that cryptocurrency brokers report personal information on digital asset transactions over $10,000, including customers’ names, addresses, and social security numbers, within 15 days.
While the goal is increased transparency and reduced tax avoidance, the rules have drawn criticism for being vague and difficult to comply with.
Uncharted Territory for Crypto Investors and Regulators
For investors transacting through centralized exchanges like Coinbase or Kraken, compliance will fall on the platform operator. But for peer-to-peer deals or mining proceeds, the responsibility shifts to the individual.
New crypto tax reporting obligations took effect on Jan 1.
If you receive $10k or more in crypto you now have an obligation to report the transaction (including names, addresses, SS numbers, etc.) to the IRS within 15 days under threat of a felony charge. pic.twitter.com/wyRsfJEpMo
— Jerry Brito (@jerrybrito) January 2, 2024
Brito raised questions about specifics such as which parties will be responsible for reporting in scenarios like miner rewards over $10,000 and decentralized on-chain exchanges. He argued that without more clarity, some filers may attempt compliance but risk accidentally committing a felony in the process.
Brito also talked about the privacy implications of the tax reporting rules now taking effect. Requiring brokers to collect and share personally identifiable information on customers’ crypto transactions with the IRS poses cybersecurity and identity theft risks, he contends.
Treasury Promised Future Guidance on Crypto Taxes
Amid the confusion surrounding the reporting rules, before they took effect, the U.S. Treasury Department stated they planned to release more guidance to aid in compliance. No formal guidelines have yet been issued, however, leaving filers unsure how to properly report anonymous or decentralized crypto transactions of over $10,000.
The goal of the increased crypto tax reporting is to close the tax gap — the difference between taxes owed and collected — which the IRS estimates to be about $1 trillion per year. Whether these controversial new requirements on crypto brokers will improve voluntary tax compliance and revenue collection is unclear. For now, cryptocurrency investors transacting over $10,000 should prepare for the IRS to receive detailed personal data on their 2024 transactions.
Hot Take: The Impact of IRS Crypto Tax Reporting Rules
The implementation of IRS crypto tax reporting rules for transactions over $10,000 has sparked controversy and concerns among investors. While the aim is to enhance transparency and combat tax avoidance, critics argue that these rules are vague and challenging to comply with.
The responsibility for compliance falls on different parties depending on the type of transaction. Centralized exchanges like Coinbase and Kraken are accountable for reporting on behalf of their users, while individuals are responsible for peer-to-peer deals or mining earnings.
The lack of clarity surrounding reporting requirements for certain scenarios, such as decentralized exchanges and miner rewards, poses challenges for filers. Furthermore, the collection and sharing of personally identifiable information raise privacy and cybersecurity risks.
Despite promises from the U.S. Treasury Department to provide additional guidance, no formal guidelines have been issued, leaving filers uncertain about reporting anonymous or decentralized crypto transactions over $10,000.
While the goal is to close the tax gap, it remains unclear whether these new requirements will effectively improve tax compliance and revenue collection. Crypto investors should be prepared for the IRS to receive detailed personal data on their 2024 transactions.
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