If you’ve made thousands or even millions of dollars on cryptocurrencies, be sure to report your winnings to the Internal Revenue Service before someone else does it for you.
Coinbase, one of the largest cryptocurrency exchanges, told customers Friday it will turn over 13,000 users’ data to the IRS within the next 27 days. The move comes in response to an IRS order issued in November 2016 to send records of users who bought bitcoin
between 2013 and 2015 so the agency could determine who was evading cryptocurrency taxes. Coinbase initially resisted the order, but ultimately agreed to send the information of “higher-transacting” customers during that time.
“Coinbase fought this summons in court in an effort to protect its customers, and the industry as a whole, from unwarranted intrusions from the government,” the company said in a notification to affected users.
The data dump is a blow for cryptocurrency fans who flock to the largely unregulated and highly volatile currency because it allows them to do business without government scrutiny. That lack of oversight has made cryptocurrency a favorite tool of purveyors of illegal goods and services, and risk-taking investors, some of whom have made a fortune virtually overnight. The insistence on filing taxes is also frustrating for law-abiding users, as the IRS has not released any guidelines regarding cryptocurrencies since 2014, leaving many confused as to how to comply.
The taxpayer IDs, names, dates of birth, addresses, and transaction records of anyone who made more than $20,000 in transactions with other users on Coinbase (including cashing out) between 2013 and 2015 will be turned over to the IRS. But even if you’re just making smaller transactions, you should be paying taxes — or at least reporting your cryptocurrencies to the IRS, said Perry Woodin co-founder of blockchain accounting infrastructure company NODE40 and chief strategy officer of HashChain Technology.
“Anybody who is transacting in cryptocurrency should be paying taxes, and should be making sure they are tracking it appropriately,” he said.
That is because under U.S. tax law, cryptocurrencies are considered property and are subject to capital-gains taxes. Each sale or purchase technically constitutes two transactions: (1) selling property (bitcoin) and (2) using the proceeds of that bitcoin sale to buy a product. So the person who bought a $1 million home using cryptocurrency Ethereum, for example, would have to pay capital-gains tax on the currency transaction as well as real-estate taxes.
Because of the current lack of clarity surrounding cryptocurrency and taxes, taxpayers should report the transactions to the IRS no matter how much money they have made, preferably with the help of a CPA, according to Coinbase, which told users it is “unable to provide legal or tax advice.”