Tom Lee explains why he can tell that there was a massive boom in cryptocurrencies in 2017.
It’s not good to flaunt your wealth. But if you do, you need to be prepared to get some unwanted attention such as thieves and the tax man for instance. This is exactly what the entire cryptocurrency industry did last year by successfully promoting itself to no end.
It’s is not a hard thing to do given the thousands of people who earned millions from their holdings of digital coins. As expected, the IRS took note of this newly generated wealth, and the industry’s winners are now in the agency’s sights. After all, one can’t blame them for going after the government’s fair share. Just how much do Americans owe in taxes? Given the crypto’s spectacular rally last year, one can just imagine the total amount to be spectacularly titanic as well.
The $25 Billion Cryptocurrency Tax
According to Tom Lee, an analyst from Fundstrat, Americans owe Uncle Sam an astounding $25 billion in capital gains tax from cryptocurrencies last year.
Tom Lee based his estimate on the $590 billion worldwide cryptocurrency market valuation last year. The amount is said to be 60 times larger than the previous year which shows how much the cryptocurrency market expanded in 2017.
American investors own around 30 percent of the total cryptocurrencies in the world. This means that their holdings, based on last year’s valuations when crypto prices were still sky-high, would total to around $187 billion which explains the equally stratospheric $25 billion tax liabilities. That’s hardly surprising given the fact that on average, cryptocurrency values rose by 900 percent during the period.
Cryptocurrency As Property
You might have thought that it was a simple case of misprint when the article talked about capital gains taxes when, in fact, we are talking about currencies, just the digital kind at that. Unfortunately, you neither misread nor the word erroneously typed, we are really talking about capital gains here.
Blame the IRS for your confusion then. Apparently, despite the word “currency” being part of its name, cryptocurrencies are not considered as currency as far as IRS is concerned.
For taxation purposes, the IRS treats cryptos as property. For this reason, the treatment of these digital coins is similar to other tangible assets such as gold and other precious metals, stocks and equities. This means that you’ll have to know how to determine the cost basis of virtual currency, how to determine fair market value, taxes on purchases made with cryptocurrencies, taxes when trading, short and long-term capital gains as well as capital losses.
Simple Preparations For Tax Filing
Of course, it sounds complicated. If you had help in filing your taxes in the past, here are simple steps you can do to prepare for the inevitable, according to Venture Beat.
1.Report all your cryptocurrency gains and losses. However, be mindful that capital losses for individual taxpayers are generally limited to only $3,000 per year.
2.Create a spreadsheet and record every currency transaction. Include useful data such as purchase price, date of purchase, the date you sold it, selling price and others.
3.Remember that inter-currency trading is taxable. Previously, “a trade of one cryptocurrency for another could in some cases be considered a tax-free like-kind exchange.” However, given that digital coins are now treated as property, treating inter-currency trades as tax-free like-kind exchanges are no longer possible – it could land you in trouble.