With the IRS stating that bitcoin and other digital currencies are taxed as though they are property, the taxation of these online assets is confusing at best.
The IRS has begun to hunt down users of Bitcoin using software that may be able to identify individual investors. This is now however something to worry about unless there are extreme cases of tax debt or penalties and interest. With the advent of the bill, “The Cryptocurrency Tax Fairness Act of 2017,” there would be a tax exemption for all transactions totaling less than $600.
If this bill is able to be passed, it would allow for tax relief for small transactions and most day-to-day transactions. With digital currency being labeled by the IRS as property, every time a transaction occurs, it can be taxed.
This means that payments using digital currency are taxable and that payers need to issue a 1099 form to their payees. Like the aforementioned fact, any transactions under $600 would not be taxed. If the legislation is able to be passed, investors would not have to about keeping track of smaller transactions and records.
Using the John Doe summons, the IRS was able to ascertain certain records from offshore accounts which amounted to the IRS collecting over $10 billion in taxed revenue. The IRS has reported that only 800 or so people have reported losses and gains during 2015 alone, this means that the bulk of bitcoin transactions are not recorded. Although this taxation is not going to be easy to enforce, it may end up leading to other black markets.
Since the main focus of cryptocurrency is decentralization, any attempt to tax or regulate the industry will not be met with positivity, and will be rebelled against by investors and those who own stake in the industry.