Cryptocurrency’s tax loophole expected to close in 2024
For more than a decade, the number of people buying and selling cryptocurrency grew and grew. Tax revenue from earnings on sales of those investments? Not so much. That may finally change — but not until next year.
When it comes to stocks and other traditional investments, investors know they have to pay capital gains taxes and follow through because every traditional brokerage each year must send its customers — and the Internal Revenue Service — a tax form, called a 1099-B, showing customers’ gains and losses. Authorities would know if a taxpayer failed to report those earnings.
Crypto traders are just as legally bound to pay taxes on their gains, but cryptocurrency exchanges have not been required to send those forms and won’t be required to do so until 2024. Without the forms, the IRS has had no way of knowing what those gains are short of going to court — or the taxpayer voluntarily reporting it.
The amount of revenue not collected is hard to calculate, given the purposely anonymous nature of cryptocurrency and the IRS’ opacity. But the Congressional Budget Office estimates that the new reporting requirement for the cryptocurrency exchanges will result in $28 billion in taxes collected over the decade after it takes effect in 2024.
“That certainly will be a huge amount of reporting — and presumably increase in revenue,” said Joseph Riley, a New York City tax lawyer who has focused on cryptocurrency, because taxpayers will “know that a copy has gone to the IRS.”