With the crypto world garnering much attention and fanfare over the past few years, token prices saw enormous growth and headcounts at crypto companies soared. However, 2022 saw the downfall of many high-profile exchanges and platforms, culminating in one of the largest exchanges, FTX collapsing in November.
As the crypto space looks to reset in 2023, authorities around the globe have the industry squarely in their sights. When it comes to crypto - one of the least understood aspects is how it is taxed.
The IRS has stated that crypto will be a large focus this year, and with the US tax season now underway, now is a more important time than ever to understand why you should take crypto taxes seriously.
The IRS knows more than you might think
Think the IRS has no idea about crypto holdings? Think again.
Even though the US tax season kicked off only days ago, now is a great time to complete your crypto taxes before the deadline on April 18th 2023. For any crypto investor still in the dark - crypto is taxed in the US - and there's no getting around it. Whilst there are some complexities, the IRS is clear that cryptocurrencies, including tokens, NFTs and stablecoins, are taxable. This means all your crypto holdings are subject to Capital Gains Tax or Income Tax, depending on the specific transaction being made.
Even this last week, US Securities and Exchange Commission chair Gary Gensler said crypto assets were on the agency's 2023 to-do list. But with all these announcements from the IRS and SEC, is the messaging getting through?
Not everyone realizes crypto is taxable
Fewer and fewer crypto investors are under the impression that crypto assets may be immune from taxation due to the IRS not knowing about crypto or not being up to date with the latest in the space.
However, Koinly recently conducted some research and found that up to 15% of crypto investors weren't aware that it was taxable. With tens of millions of crypto investors in the United States, this could mean a sizeable amount of investors who don't realize they have tax obligations on their crypto asset holdings.
It's also important to remember that data on public blockchains are inherently traceable, so it is important to be upfront when it comes to your taxes.
Do your crypto taxes - even if you're sitting on large losses
Crypto investors across North America may not be thinking of lodging their crypto taxes after crypto markets plunged an average of 70% over the past financial year.
Current market conditions have resulted in many investors' portfolios firmly in the red. Many sitting on losses this year may believe they have no tax obligations (i.e. no tax to pay). However, there are steps investors can take to benefit from any losses incurred via tax loss harvesting to help save on current or future tax bills.
It's important to talk to an accountant about strategically optimising your crypto investments and applying for available loss reliefs before the financial year's end, such as tax loss harvesting.
As a crypto investor in the US, if you've realized any losses over the past financial year, you can actually use them to offset your gains on similar assets. Any losses that exceed gains can also be carried forward into future financial years, making it worthwhile to ensure you're reporting everything correctly.
Not declaring gains or underreporting your gains is illegal - with severe penalties for tax evasion. Some crypto investors may believe they'll get away from tax evasion simply because the IRS won't be able to track crypto, but it's not easy. The IRS has programs to track crypto transactions from exchanges, which may be required to report transactions. Declaring your taxable crypto transactions is essential - don't wait for the IRS.
Get your crypto taxes in order with Koinly
Crypto tax software, such as Koinly, can help ensure you understand your tax liability, so you're not left with surprises. It also helps to calculate your crypto taxes so you can more accurately report it this tax time to the IRS, providing great records should you ever be subject to a crypto tax audit.
Koinly integrates with 700+ exchanges, blockchains, and wallets to give investors an easy and accurate way to track their crypto transactions in one place. From here, Koinly calculates the total capital gains and income an investor has derived from their crypto in any financial year.
Koinly is a cryptocurrency calculator trusted by crypto investors in over 20 countries. Koinly integrates with 700+ exchanges, blockchains, and wallets to give investors an easy and accurate way to track their crypto transactions in one place. From here, Koinly calculates the total capital gains and income an investor has derived from their crypto in any financial year.