Walker advises that crypto users should always report details of their transactions.
According to Walker, despite its efforts to enforce crypto taxation, the IRS does not understand crypto technology.
Allegedly, the IRS’s tax guidelines are flawed because they do not define the taxation of all crypto assets.
Wendy Walker, a solution principal at Sovos, a tax compliance firm, has identified reporting as the most important part of filing crypto taxes. She disclosed this information during an interview on October 30th and noted that crypto users should always report details of their transactions even if they do not owe income tax. Walker shared this information after the IRS recently updated Income Tax Form 1040 to focus on crypto currencies.
The IRS reportedly added a new question to the 1040 income tax form, asking U.S. taxpayers about their financial interests in virtual currencies. The agency is now requiring U.S. citizens to disclose whether they have used crypto-currencies during the filing year. The question is: “At any time in 2019, have you received, sold, shipped, exchanged or otherwise acquired financial interests in any virtual currency?
While the question is easy to answer, ticking the box would be the first step for crypto users on a journey of a thousand miles. This is because the handling of cryptography involves numerous transactions, including purchases, sales, fees, multiple storage locations, and a variety of information that may apply to tax filing. As a result, filing crypto taxes is currently an arduous task. Although it is complicated, Walker believes that the IRS can help simplify the process. However, the agency would need to catch up before it could accomplish this feat.
The IRS still needs to understand crypto
According to Walker, the IRS has not fully understood the crypto-sector despite the release and enforcement of tax policies. She added that since 2019, the agency has introduced several attempts to clarify and rulings on crypto-currency taxation. However, these efforts have only served to prove that the IRS lacks sufficient knowledge of the nascent industry.
“While they are putting all this through, they are unfortunately learning something about it at the same time.
She went on to say that the tax guidelines were flawed. That’s because they do not include appropriate documentation when it comes to crypto-transfers between exchanges. In addition, there is a grey area in the taxation of digital currencies, which are classified as commodities and securities. Although U.S. regulators have come a long way in classifying crypto-currencies, many assets are reportedly lacking an adequate definition.