Bitcoin & Other Crypto Investors Must Pay Taxes To IRS


There are many stories around us, and about people online becoming insanely rich by investing in cryptocurrencies. However, that getting quick rich thing did not necessarily go well with the tax man. The cryptocurrency investors who were making huge gains now need to pay taxes.

Some people are already talking about the amount of money they owe to the IRS (Internal Revenue Service). The IRS is a US government agency tasked with collection of taxes and also ensuring enforcement of tax laws.

Paying Taxes on Devalued Cryptocurrencies


Many of the investors did once gain profits, but the value of their investments have plunged. Some of the investors (newbie in the field of investment) know nothing about how to pay taxes. Initially, cryptocurrencies were supposed to circumvent any government authority or central bank. However, the IRS is quite interested in those gains and the taxes that investors owe to the government.

Notably, the investors consider the cryptocurrencies as a medium of exchange and not an investment or asset. However, the IRS considers these cryptocurrencies as assets. Therefore, it believes that cryptocurrency investors need to pay taxes on capital gains. This interpretation includes not only those who invested in cryptocurrencies, but also the ones who used it buy something else.

Confusion on 1099 Disclosure Forms & Accounts under Taxation


The crypto-brokers do not have to issue 1099 disclosure forms that the IRS uses for reporting income apart from wages, tips, and bonuses. However, individuals still need to report such income. There is also a difference on the number of accounts that the IRS needs to look into. Only 800 taxpayers have paid taxes on capital gains from cryptocurrencies between 2013 and 2015. This clearly indicates that not enough people are paying taxes on their crypto earnings, since the Coinbase agreement affects around 10,000 accounts. Meanwhile, the IRS had initially requested details for 480,000 accounts.

There are other complications that the IRS needs to take care of as well. For example, if a cryptocurrency investor holds and sells a cryptocurrency after one year, such gains would come under long term capital gains. Similarly, losses are not deductible under future tax years.

The crypto-to-crypto transactions are also taxable, such as exchanging BTC for ETH. Additionally, when one purchases something else by using a cryptocurrency, they do not only need to pay sales taxes but also other taxes since an exchange of a property or asset took place.

Responsibility on the Individual to Pay Taxes


The IRS puts the responsibility to pay taxes on the individual, but it is not that easy for the IRS to find the individuals who owe taxes. Therefore, it becomes an individual’s responsibility to pay taxes on cryptocurrency capital gains.

Similarly, the IRS also faces the problem of tracing the individuals with pending taxes on cryptocurrency investments’ capital gains. Currently, the IRS only has an email address to trace those individuals in many cases, and, as we know, many individuals did not use their own email address when trading in cryptocurrencies.


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Thank you for posting this very informative article. It will sure help those just getting started in the crypto exchange, and also give a better perspective as to what we as investors, big or small should be keeping accurate records on.

Thank you for your insight!