Cryptocurrencies, such as Bitcoin and Ethereum, have been on the rise recently, with more people investing in them and businesses accepting them as payment. With this rise in popularity, there has been a lack of clarity around how crypto should be taxed in the US due to regulatory confusion.
A cryptocurrency is a form of virtual or digital forex that makes use of cryptography to enhance security. It isn’t issued or regulated through any central body, making it theoretically immune from governmental interference or manipulation. Instead, cryptocurrency is decentralized, which means it operates on a peer-to-peer network that isn’t controlled by any single entity.
The main issue is that the IRS does not consider crypto to be either a tangible asset or property. This means that the current regulations do not specifically address the taxation of crypto at the federal level. This has caused much confusion among crypto investors, who are uncertain about how to report their income and how much they should be paying in taxes.
Taxes and NFTs
The confusion has been further compounded by the advent of non-fungible tokens (NFTs). NFTs are digital assets that are stored on the blockchain and have unique characteristics that distinguish them from other crypto assets. They are not considered a currency or a security and are not subject to the same regulatory framework as other crypto assets. This means that investors are unsure how to report their NFT profits or what taxes they should be paying.
Crypto is now undertaxed
The lack of clarity around taxes has led to a situation where crypto is significantly undertaxed in the US. This is a problem for the US government, as it means that the government is missing out on tax revenues from crypto investors. Also, it makes it difficult for businesses to know how to price services or products that involve cryptocurrency due to the lack of know-how about the tax liability they might face.
To address this issue, the IRS should create a clear and consistent framework for taxing crypto. This would ensure that crypto investors pay their fair share of taxes and help generate much-needed government revenues.
In the meantime, crypto investors should work with a qualified tax professional to ensure they correctly report their crypto income and pay their taxes. They should also keep up to date with any developments in the regulatory environment, so they can be sure they comply with all applicable laws.
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