From IRS To Cryptocurrency Traders: “Pay Your Taxes!”

Cryptocurrency TaxesCryptocurrency is a compelling industry that has caught the attention of the masses. However, if cryptocurrency is going to be here to stay, it’s important that the masses follow the rules, and one of those big rules is paying taxes. At the end of the day, we all know that it is a requirement that we pay taxes on every penny we earn. This includes cryptocurrency earnings and the United States Internal Revenue Service (IRS) has released a statement reminding those involved in the industry that they must report their earnings.

The IRS Isn’t Kidding Here!

As mentioned above, the IRS has reminded those that are earning money through the use or trading of cryptocurrencies that moneys earned must be reported for tax purposes, and they’re not playing. Here’s the statement dated March 25, 2018 from the IRS that explains that traders must report gains:

The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.

In some environments, virtual currency operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency.  Among other things, this means that:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on

In this note, it’s clear that the IRS isn’t playing games. They are providing clear and decisive instructions with regard to what cryptocurrency related transactions result in taxes, what constitutes gains, and how to file these earnings. This document is ultimately the “No Excuses” document. Now that this information is clear and public, those who gain from the cryptocurrency market must pay their taxes on those gains!

Trying To Hide Earnings Could Be A Detriment To The Entire Industry

At the end of the day, maybe people are doing it just because they didn’t think it had to be reported. Nonetheless, it’s clear that most traders are not reporting their taxes. Credit Karma recently said that out of the first quarter million tax filings on the system, fewer than 100 included information with regard to cryptocurrency gains! That works out to about 0.04% of filers reporting cryptocurrency related gains. Unfortunately, that’s far fewer than the 7% of tax payers who are estimated to be investing and generating gains from cryptocurrency related transactions.

This is bad news for the cryptocurrency industry as a whole. At the end of the day, one of the big fears surrounding cryptocurrency as of late has been regulation. Unfortunately, if the IRS has to chase their money down from cryptocurrency traders, this is only inviting further government scrutiny on the industry as a whole.

It’s Time To Start Paying Your Taxes

If you were considering holding back on your cryptocurrency related gains when it comes to your tax returns, think again! Not only is this action bad for the cryptocurrency industry, it is against the law. Considering the fact that the IRS is already bringing exchanges to court for data on the investors they serve, those that do not report earnings are likely to get caught, and that won’t be fun!

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