Tax expert claims reporting is key in the process of filing crypto taxes

Tax expert claims reporting is key in the process of filing crypto taxes
Written by:
Jinia Shawdagor
30th October, 12:17
  • Walker advises that crypto adopters should always report details of their transactions.
  • Per Walker, the IRS does not understand crypto despite its efforts to enforce crypto taxation.
  • Allegedly, IRS’ tax guidelines are flawed as they don’t define the taxation of all crypto assets.

Wendy Walker, a solution principal at Sovos, a tax compliance firm, has come out to describe reporting as the most important part of filing crypto taxes. She disclosed this information during an interview on October 30, noting that crypto adopters should always report details of their transactions even if they don’t owe income taxes. Walker shared this information after the IRS recently updated the 1040 income tax form to focus on cryptocurrencies.

Reportedly, the IRS added a new question to the 1040 tax income form asking US taxpayers about their financial interests in virtual currencies. The agency now requires US citizens to disclose whether they handled cryptocurrencies during the filing year. The question is, “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”

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While the question is simple to answer, checking the box for crypto adopters would be the first step in a thousand-mile journey. This is because handling crypto involves numerous transactions, including buying, selling, fees, multiple storage locations, and a wide range of information that may apply to filing taxes. As such, filing crypto taxes is currently an onerous task. While intricate, Walker believes the IRS can help simplify the process. However, the agency would have some catching up to do before achieving this feat.

The IRS is yet to understand crypto

According to Walker, the IRS has not fully understood the crypto sector despite releasing and enforcing tax guidance rules. She added noted that the agency has introduced several attempted clarifications and rulings around the taxation of cryptocurrencies since 2019. However, these efforts have only served to prove that the IRS lacks adequate knowledge of the nascent industry.

Walker added,

“While they’re doing all this enforcement, they’re also kind of learning about it at the same time unfortunately.”

She went on to state that the tax guidelines are flawed. This is because they lack related documentation when it comes to crypto transfers between exchanges. On top of this, they have a gray area regarding the taxation of digital currencies categorized as commodities and securities.  Although US regulators have come a long way when it comes to classifying cryptocurrencies, many assets reportedly lack proper definition.

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