A tiny fraction of Americans are reporting their cryptocurrency transactions to the Internal Revenue Service, according to a study from Credit Karma Tax.
Fewer than 100 of 250,000 federal tax returns prepared and filed so far this year through the company have filed a Form 8949 for cryptocurrency gains and losses, Credit Karma said Tuesday. That’s less than 0.0004 percent of filers.
“Generally, Americans with more complex tax situations file later in the tax season, especially if they expect that they’ll owe money,” Credit Karma Tax General Manager Jagjit Chawla said in a statement. “However, given the popularity of Bitcoin and cryptocurrencies in 2017, we’d expect more people to be reporting.”
The company said 52 percent of their filers this tax season are millennials, and just 14 percent are at least age 55.
Reuters first reported the study’s findings. Investor interest in bitcoin and other cryptocurrencies surged last year, helping send prices several thousand percent higher.
The lack of cryptocurrency tax filings “emphasizes the difficulty in accurately reporting your crypto gains and losses,” said Brandon Williams, a former investment banker who has been independently trading cryptocurrencies for about the last two years.
Williams said he executes more than two cryptocurrency trades a day, and uses an online service called CoinTracking to record those transactions for tax purposes. The volume and volatility of cryptocurrencies means it takes at least three or four hours every two weeks to note trading gains and losses, Williams said.
The IRS treats cryptocurrencies as property rather than a currency. As a result, a transaction such as trading bitcoin for another digital coin is taxable since it is considered a sale of property for cash, which is then used to buy the other cryptocurrency. Income from creating bitcoin through the “mining” process is also taxable, the IRS said.
Williams said it would make more sense to him if cryptocurrencies were treated as currencies, and that the designation as property is “almost a deterrent in [the] pursuit of mainstream adoption.”
He said he will “obviously wait closer to April [to file] in case there’s more visibility and definition from the IRS about what would be acceptable.”
A representative for the IRS said it did not immediately have anything to add beyond guidance published on its website.
About 1 million people filed taxes through Credit Karma when it launched its free tax service last year, the company said. The firm added that makes Credit Karma the fifth largest e-filing service.
A survey from LendEDU and conducted by Pollfish in November found that slightly more than a third of respondents were not planing to report their bitcoin transactions to the IRS. About 64 percent of the 564 American adult consumers who responded said they planned to report or have already reported their bitcoin transactions.