Credit Karma Tax, the tax prep branch of the popular credit score site, said April 13 that fewer than 100 of the 250,000 most recent tax filers through the service have reported cryptocurrency transactions. One of the biggest questions this tax season has been the impact that last year's cryptocurrency boom would have on filers across the U.S. In 2017, cryptocurrencies became among the very trendiest investment (or speculation, depending upon your perspective) opportunities. Now, after months of debate and questions about exactly what the implications of digital currencies are for U.S. tax filers, tax day is approaching.
IRS Treats Cryptocurrency Investments as Property
According to the IRS, which has provided guidance on bitcoin (BTC) transactions for more than four years, cryptocurrency is considered to be property. As such, the purchase, sale, trade, and mining of digital currencies could be considered taxable events, according to Coin Telegraph. (Related: How to Prepare Your Bitcoin Tax Filing)
The low figure, which amounts to about 0.04% of tax filers, is not far off from previous figures as well. For the 2015 tax year, the IRS indicated that only 802 people had included cryptocurrency gains or losses in their tax filings. While this is almost certainly smaller than the actual number of people experiencing these events, it may not be an accurate comparison for the 2017 tax year because of the vast differences in popularity of the cryptocurrency space between those periods.
Cryptocurrency Filers Could Be Waiting
Credit Karma Tax general manager Jagjit Chawla explained that there is a "good chance that the perceived complexities of reporting cryptocurrency gains are pushing filers to wait until the very last minute." Elsewhere, analysts have estimated that the dip in cryptocurrency prices in the first quarter may have been due to a larger sell-off by digital currency investors interested in holding fiat currency heading into tax season. On the other hand, cryptocurrency holders may just be underreporting their activity. As K&L Gates partner Elizabeth Crouse suggested, "most of the people in the cryptocurrency world tend to have a pretty high risk tolerance."
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.