Taxation of Cryptocurrencies and Digital Assets Is No Easy Feat

Assignment and appropriation of taxes on regular income and fiat transactions might be easy and familiar, but filing taxes related to cryptocurrency is not as straightforward as people might think.
Cryptocurrency traders might call their Bitcoin, Litecoin and other digital assets a “currency,” but the Internal Revenue Service (IRS) treats it just about differently. To the IRS, virtual currencies are not much different from stocks, and are referred to and dealt with in the same fashion. However, with this arrangement, taxpayers might find it hard to report their returns accurately.
In an interesting turn of events, a significant number of U.S. citizens who got involved in cryptocurrencies due to 2017’s market surge might find themselves liable for capital gain taxes with the IRS possibly set for tax losses this year as people might end up owing the IRS more than what their crypto assets are presently valued, due to the bearish nature of 2018’s market. If IRS’s N-14-21 Notice–an official document containing guidelines and rules for cryptocurrency investors– is to be adhered to strictly, a lot of American traders might find themselves liable to a number of things that they didn’t bargain for.
Unfortunately, that a dip could occur in an asset’s value is no concern to the U.S. tax law when dues are to be assigned, only the value an asset gains is essential. Thus, the more uncomfortable it becomes for cryptocurrency investors who decided to defer their tax payments to October, instead of April in the early parts of the year.
Cryptocurrency investors are only required by law to report asset gains during conversion of all assets, or the trade of one’s assets for goods, services or other digital assets.
The process might look all easy, but analysis and records are not as straightforward, mostly because of the absence of standard regulations. Investors would have to take time in organizing and analyzing their transaction history from wallets & exchanges since the average virtual currency investor uses multiple platforms. They would also have to perform the fairly arduous task of identifying trades and separating them from activities that are not taxable such as the transfer of funds between wallets. Besides all this, the investor is still required to calculate their dues.
Given that the IRS recently sent a firm message to investors by instructing Coinbase to turn over their user-data for the purpose of taxation, American investors would most likely want to be on the safer side of this one.

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