An income tax and accounting specialist from the IRS Office of the Junior General Counsel who worked on the new crypto exchange taxation guide during the conference of the American Institute of CPAs explained that cryptocurrency exchange taxes for transactions should not be deferred until 2018, even with the same type of exchange. The US Internal Revenue Service reports that attitudes toward like-minded exchanges have never been applicable to cryptocurrencies.
More and more people are looking for the best tax software as the tax office strengthens its enforcement. People hope to help the IRS in this matter, after the Internal Revenue Service clarified the difficult places in the tax guide regarding how crypto exchange taxation transactions occur, especially with regard to promotions and exchanges of this kind.
The wording in tax law that caused difficulties
After allowing taxpayers to defer the payment of income tax on sales, if the proceeds are reinvested in similar property, fixed after the tax review in December 2017. This caused the most questions from tax practitioners to the new crypto exchange taxation guide regarding crypto transactions made before 2018. This question was not the only one that was raised among taxpayers conducting cryptocurrency transactions. Also, difficulties with the correct and unambiguous understanding of the new tax rules were caused by points regarding airdrops and hard forks.
The IRS explains that prior to the amendment of the law, article 1031 also applied to certain exchanges of personal or intangible property, except for immovable property intended primarily for sale. Section 1031 of the tax guide, which entered into force on December 31, 2017, attracted the attention of practitioners with wording regarding the like-kind exchange. It says that this applies only to exchanges of real estate intended for use in trade or business or for investment. This has confused many.
Demand for tax software continues to grow
In July of this year, the IRS sent out over 10,000 reminders to cryptocurrency holders of their tax obligations. The actions of the tax collection agency have led to an increase in demand for new software that could calculate tax liabilities after cryptocurrency transactions, track cryptocurrency transactions, return files and hold claims. To ensure compliance with tax laws in the crypto space, the IRS is stepping up its efforts and devotes additional attention and resources to this. The IRS even works with tax authorities in other countries to identify crypto holders who do not pay taxes on crypto transactions. The agency claims that it has new tax tools useful for cryptocurrency holders and has recently provided a list of them.
In the days following IRS announcements, traffic to specialized tax platforms that help users file tax returns has started to grow rapidly and has already grown several times in recent years, as it seems that even those who were interested in the news of the change in tax legislation regarding crypto exchange taxation to whom the IRS did not send reminders of their tax obligations. For example, Cointracking, a cryptographic tracking and reporting platform, has seen triple traffic growth over the last summer month of 2019.
It becomes difficult for people, taking into account all transactions conducted in the crypto, therefore, in order to cope with their crypto tax obligations, more users are either looking for suitable convenient software or are already using it. In this regard, the market already requires such software solutions that will help track crypto transactions and keep track of them to fill out a tax return.
What about Airdrops?
In a new guide this October, the theme of airdrops and promotional crypto companies says that when you receive cryptocurrency in this way, especially after a hard fork, taxpayers are considered recipients of ordinary income. This is true if you have control over a cryptocurrency that has acquired its market value and you have the ability to sell, exchange, transfer or otherwise dispose of it. In addition to its previous recommendations published in 2014, the tax agency released the latest crypto exchange taxation guide in October this year.
The issue of promo airdrops stands apart so far. Marketing programs of advertising airdrop companies, where they distribute free coins in accordance with the new IRS crypto-tax guidelines, should not be considered taxable yet, but this is not a final decision, we can say that decisions of IRS about promotional airdrops yet.
The US Internal Revenue Service made further changes to the crypto exchange taxation in order to ensure control over the receipt of profit from the turnover of cryptocurrencies in the country, however, taxpayers had questions regarding a number of changes. Find out what the IRS clarified in the new tax guide.