Crypto, crypto everywhere — or so the exchanges and a growing number of merchants hope. And given the growth of digital transactions and cross-border commerce, it seems that many consumers are hoping so, too.
However, amid the muddle of following this new currency down the money trail, there sits the tax man, who is watching more closely than ever and devising new ways to get paid.
It’s a truism that governments like to collect tax revenues. It’s also a truism that no one really likes to pay taxes. Here lies the eternal struggle, made a bit more twisty/turny in the age of cryptocurrencies.
The scope of what might lie in the future is hinted at in recent research from BitPay and PYMNTS. In the Cryptocurrency Payments Report, more than 8,000 U.S. consumers gave a glimpse into just how they want to pay — and, in particular, how they want to spend cryptos. Extrapolate the findings a bit, and 18 percent of the U.S. population is likely to use crypto to make a purchase, and those who have used it – 45 percent of the tally – make small-dollar transactions of less than $100. By the process of elimination, that leaves 19 percent making purchases of more than $1,000.
These transactions can get pretty outsized if you drill down by category. Of owners who purchased using cryptos, 17 percent bought real estate, 18.2 percent bought jewelry, 16 percent bought autos, boats or other vehicles (not Teslas, we’ll wager, given that Musk’s firm is out of the bitcoin acceptance track, at least for now). In one example, Mecum Auctions, a collector car auction company, will accept cryptocurrency for payment.
We are quick to note that there is nothing inherently wrong or sketchy in crypto crossing borders and being used for retail transactions. Crypto acceptance is certainly widening. But there can be a layer of opacity that makes it hard to follow the money.
These transactions get done when crypto is converted to fiat — and herein lies the rub. Fiat on one end of the transaction comes to fiat on the other end of the transaction. Consider this: As exchanges operate internationally, and as speculators move toward becoming transactors — beyond buying luxury goods — crypto can also represent a way to move money out of a given country, parking that money into a good.
Tax Authorities Taking Stock
Regardless of the nature of the transaction, governments like to know who is buying what, and how much is owed to the tax coffers. Various countries are cracking down on taxation authorities.
As reported by news.com.au, the tax office will be contacting 100,000 taxpayers with crypto assets and will prompt them to review their returns. The Australian Tax Office’s assistant was quoted as stating that the office follows “the money trail back to the taxpayer … [through] data matching profiles with cryptocurrency exchanges … they provide that information to us and we use that information to cross-match with people’s tax returns.”
When buying, selling and swapping for fiat currency (which is akin to moving money out of a country), or exchanging one cryptocurrency for another, the transaction would be subject to capital gains taxes. Here in the States, the IRS is mandating that crypto-related transactions above $10,000 be reported.
The Treasury wrote that “cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly, including tax evasion.” Elsewhere in “The American Families Plan Tax Compliance Agenda,” the Treasury said that its updated policy position on cryptos “involves shining light on opaque income streams, including proprietorship and partnership business income … The reporting regime would also cover foreign financial institutions and crypto-asset exchanges and custodians.”
Following the money is not easy, but governments and taxation authorities are determined to pick up the scent.
Selected by EFXA