If there’s one word that’s guaranteed to send shivers down the spines of cryptocurrency investors, it’s “tax.”
The IRS is ramping up efforts to track down those who fail to pay tax when they sell digital assets for a profit—not to mention those who fill out the relevant forms incorrectly.
But exchanges in the space are now attempting to make it easier for their users to abide by the rules.
In an announcement on Oct. 29, Gemini said this will allow users in the U.S. to download a completed tax report that can then be processed through popular tax filing software, or given over to an accountant.
One feature that’ll likely be music to the ears of crypto enthusiasts are tools that could help reduce their tax liability—or boost the refund that they receive.
“You will be able to see the real-time tax impact of your transactions, as well as receive trade alerts when tax saving opportunities are available,” Gemini told its users.
Last week, the IRS released draft guidance that reveals some of the changes being made to Form 1040, which Americans fill in when submitting their individual income tax return.
Now, a question about virtual currency ownership has been placed on the very first page of this form, and Americans will need to tick the box if they received crypto as a result of an airdrop or hard fork, exchanged It for goods or services, or sold it.
“A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control,” the IRS guidance added.
The clearer guidelines—and the move from Gemini—could provide some much-needed clarity to the crypto community, and also raise awareness.
Back in April, a report suggested that most crypto holders are “alarmingly unaware” of the taxes they owe on their investments, as well as the deductions they’re entitled to claim. Worryingly, half of U.S. accountants polled by the crypto accounting platform Blox believe that most of their clients who own digital assets are likely to be audited and owe back taxes.
In May, some crypto tax platforms revealed that they had been approached by the IRS, which was looking for outside contractors to assist them with performing audits. CryptoTrader.Tax later announced that it had turned down the business—but two months later, it emerged that Coinbase had inked a $125,000 deal to offer assistance.
Coinbase has also cooperated with HM Revenue and Customs, the United Kingdom’s tax authority, by handing over the details of those who received more than £5,000 ($6,500) in their accounts during the 2019/20 tax year.