Bitcoin multiplied more than 13 times last year, and the entire cryptocurrency market gained well over $500 billion in paper value. As a result, U.S. households likely owe $25 billion in capital gains taxes for their digital currency holdings, according to estimates from Tom Lee, head of research at Fundstrat Global Advisors.
However, properly reporting those taxes “right now it’s certainly more significantly challenging than stocks or securities because the infrastructure’s not there,” said Jim Calvin, partner at Deloitte. “The accounting for transactions, the support is not there.”
For example, when calculating the “costs of goods sold,” companies can adopt a standard of “last in, first out,” or “first in, first out” that determines the price of inventory sold based on date. But no standard for cryptocurrency trades yet exists.
Calvin expects the problem will be resolved in the next year or so through better cryptocurrency accounting software.
But as the April 17 deadline for this tax season rapidly approaches, few Americans appear to be paying their cryptocurrency-related taxes.
Of the 250,000 most recent filers on the Credit Karma Tax platform, fewer than 100 people reported capital gains on their cryptocurrency investments, data released Friday showed. And in January, Credit Karma and research company Qualtrics found just over half, or 52 percent, of 2,004 Americans were unsure how their cryptocurrency holdings would affect their taxes.
Fifty-seven percent of respondents did say they’ve realized gains from those investments, but 59 percent said they’ve never reported any cryptocurrency gains to the IRS.
“The one thing to remember is how you use it is how it’s taxed,” Lisa Greene-Lewis, a certified public accountant at TurboTax, said in a phone interview.
“People think that even if they’re holding onto bitcoin they may have to do something,” she said. But “it’s not a taxable event.”