Cryptocurrencies & Taxes: Eyes On You

We all hate ’em, but have to pay ’em, nonetheless. Taxes. That’s it, the dreaded word that sends the shivers down the spines of the uninitiated and the poor of this world. And for those futurists who see cryptocurrencies as the ‘cash’ system of tomorrow, fingers are pointing at you, too!Photo by Jon Tyson on Unsplash

Fear Factor

One of the most worrying things people contemplating about investing in cryptocurrencies is in regard to taxes. I know, I know, one could say that’s the same with any investment, but the thing with cryptocurrencies — more so than with other areas of the financial world — is not many know if they should pay them or not and how much if they do. The world of Bitcoin and other altcoins is a shady one for many tax professionals, never mind for those uneducated in it. With the correct advice, though, paying taxes on cryptocurrencies can be no less of a hassle than with fiat.

However, there is a caveat to all this, one that if it is not followed, can land the cryptocurrency investor in a heap load of trouble with the Internal Revenue Service (IRS) or any other national tax collection agency.

Death and Taxes

The old adage that there are only two things that are certain in life, death and taxes, shouldn’t stop those potential investors in Bitcoin and altcoin from going ahead with it.

Photo by Danielle MacInnes on Unsplash

The IRS believes crypto traders and miners are an easy target for the collection of taxes. The confiscation of traders wealth and the fines that can come with incorrect tax returns can financially ruin those who do not heed the warnings.

This is serious stuff.

At its very worst, people have lost their minds over this, and God forbid, even killed themselves.

Or one mistake and you could find yourself behind bars and with fines to pay off that could hound you for a lifetime.

Not a pleasant prospect.

End of an Entrepreneur's Dream

That is why, in part, I stopped my ‘mini-me cryptocurrency mining enterprise’ back in 2016 after a brief stint with it. Okay, I only had a cheap $300 GPU I purchased on Amazon, but the worry over future tax implications, not really knowing what I was doing and the probative cost of electricity in comparison to potential earnings forced me to quit and sell the mining rig at a loss.

There’s no point crying over spilled milk, though.

Yet the problem remains.

Jumping On Ye Ol’ Bandwagon

With cryptocurrencies growing in popularity, and the chance to strike it rich, more and more seem eager to jump on the bandwagon and make a go of it. This is leading to countless people falling prey, quite innocently in most cases, to charges of tax evasion and other crimes.

For some people, taxation is a necessary evil that, though begrudgingly, they are willing to pay. For others, it’s immoral and unfair, as they consider they have already paid their fair share of taxes throughout their working lives. Many crypto traders see themselves in the latter camp: they see taxation as theft, especially those who only trade cryptocurrency to cryptocurrency. I, personally, sit somewhere on the fence with this, though because I am not really up-to-date with the ins and outs of everything, can’t really say too much about it.

Source: winesthatdeliver.com

Coindesk announced from information at the IRS in the last few days that any US citizens who has not reported any crypto transactions, or given false reports on earnings, could very soon be landing in hot water, as the policy on cryptocurrency has now changed

Ouch!

The media company Bloomberg has reported that the IRS has pinpointed a few crypto traders who didn’t file their tax returns properly or, at the very worst, didn’t file the tax returns at all. These people have now been located and will be served notices soon.

This is a shame.

According to US tax expert Clinton Donnelly, who was recently interviewed on Ivan on Tech , a popular YouTube podcast by Swedish-Belorussian international speaker, blockchain educator, software developer, data scientist and guru on it, Ivan Liljeqvist, “for the IRS most cryptocurrency traders as ‘low-hanging fruit’, to squeeze, and squeeze them financially. In a way that confiscates most of your wealth and will leave you in debt to them for years to come”.

I don’t wanna be an pear!

Due Diligence

Now, although I don’t agree with most of what Mr Donelly said, there was something good he mentioned: due diligence is essential.

This isn’t good news for people who are more carefree about paying taxes, the ones a little too libertarian for their own good. For those who don’t want to get heavily fined, you can always go off and live in Germany, Belarus, Slovenia or Singapore — countries with no tax on cryptocurrencies.

Me like some of that!

But for those mortals amongst us who don’t fancy living in the land of lederhosen, a staunchly communist-style dictatorship, a small, mountainous former Yugoslavian republic or a south-east Asian sweatbox for the rest of our lives, the choices are limited, I’m afraid.

Some people think because it’s a cryptocurrency, because it’s secret in a way, all cloak and dagger, they can get away with it. But the simple fact is, you can’t. All right, maybe you can for a while, but it is only a matter of time before the taxman gets wind of your fiscal operation and fucks you up.

That clock’s ticking and you better hear it!

And you don’t want that to happen.

Greedy Tax Octopus

The IRS has many tentacles. It’s a powerhouse, really, backed up by the biggest mafia in the world, the US government, plus the best AI systems around to highlight your financial misdeeds. Like all national revenue services on earth, it’s greedy. Pig greedy. And it’ll stop at nothing to get what it wants, to get what it wants and more. And after that, just a little bit more, just for good measure. It’s a machine of avarice. Gluttony is its middle name. No, sorry, it’s Christian name, indelibly tattoed on its forehead with pride. It’s always hungry to the small man’s detriment and we can’t do a single thing about it, unfortunately.

Source: canstockphoto.com

Doubters believe because they use blockchain and Bitcoin etc they’re untouchable. But they don’t get it.

You heard of the National Security Agency?

You have?

Well, that’s good.

The NSA tracks everything. Again, it’s just an extension of the government, an extra pair of eyes, a pair pointing straight at you, sucker.

Coinbase. Binance. Bitpanda. Doesn’t matter which cryptocurrency trading platform you’ve used, they have you on record. They know you’ve got an account, and presume, that you’re trading.

Even if you aren’t, that you’ve never made an exchange or earned a dime on a trade, they’ll suspect you are, because they’re a bunch of cynical motherfuckers.

Don’t go saying the sea is salt to them because they won’t believe you.

Dillinger Mark II

You’re a trader in cryptocurrencies, and as far as they’re concerned you’re public enemy number one, a John Dillinger of the crypto-age.

They’ve got all the information on you, when you opened your account, how long you’ve been doing it for, the amount of exchanges you’ve been involved in, all using high-tech AI data systems that you aiyn’t got a chance in hell of defending yourself against.

John Dillinger. Source: fbi.gov

So don’t lie to ’em or you could get yourself in heaps more trouble.

So, why is the IRS chasing cryptocurrency traders more than any other tax dodgers? Why not tax evaders of fiat currencies?The answer is simple:It’s basically easier.

Too Much Hard Work

For your average tax dodger, those of us who use fiat currencies, the job of tracking you down — though no harder in essence — gives the taxman more of a headache.

Once the IRS finds the guilty party, accuses the person of tax violations, they have to check the said person’s accounts, bring in an auditor, do an audit. The effort, quite honestly, requires a helluva lot of labour-intensive work. This hassle, in turn, is not worth their effort.

Because who wants that shit?

Certainly not the IRS and all the other tax revenue agencies around the world.

They have to think in a different way to get their money.

And they do.

They go after the cryptocurrency trader, using all the power available to them: huge amounts of data and AI. That’s it.

Ten Sweet Thousand

When they send you a letter, it automatically incurs a fine. Know how much it is?

Ten grand.

Yeah, that’s right, ten sweet thousands. $10,000 for not heeding the anti-money laundering regulations.

At least that’s what Mr Donnelly states, but many people believe he’s a fud, a scammer, using the interview time to sell his services and promote a free book that I couldn’t actually find on his website.

Oh, I did see one costing $197, though!

Whatever his opinion or anybody else’s, education pays, my dears, especially where taxes are concerned, and doubly important with cryptocurrencies, so do yourself a favour and read up on it. You’ve got to educate yourself to the traps and pitfalls that can befall you.

So do it.

Cryptocurrencies & Taxes: Eyes On You was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.