In May 2017, a US-based university student invested $ 5,000 in Ethereum (ETH), when the digital assets were worth around $ 50.
In just months, Eth's price soared from $ 50 to $ 1,281 at its peak, as the cryptocurrency market reached $ 800 billion.
With a base return of 25 times, having made over $ 125,000 in ETH, the individual invested in some digital assets and initial coin offering projects (ICOs) and, at the end of December, the Investor has reached $ 880,000.
"I started playing more than a bad ICO to start 2018, I had money in coins that absolutely collapsed with no chance of recovery, etc. Today my portfolio stands at $ 125k, far from my $ 880k. my estimated tax debt for 2017 is about $ 400,000, "said the student.
At the height of the cryptography market, the student recorded a net profit of $ 875,000 with an investment of $ 5,000.
In the United States, cryptocurrency investors are required to declare taxes using the 1099-K tax form and the major cryptocurrency platforms such as Coinbase have tax filing systems to automate the process for their investors.
In March, after spending more than a million dollars in January in a conflict with the Internal Revenue System (IRS), the United States Federal Revenue Service, Coinbase released new tax instruments to help users establish a complete view of the trading activity, calculate the gains and losses and taxes on the files.
"The profits on sales and exchanges of digital currencies are taxable in the US For reference, here are the IRS guidelines for reporting of digital goods earnings.We understand that taxes for digital currency can be complicated, so we have updated the our tax instruments to simplify relationships, "said the Coinbase team at the time.
At the beginning of 2018, Coinbase reported the 1099-K of the individual, who calculated all the gains made by the individual for the entire solar year. While the student did not withdraw funds from a bank account during that period, the cryptocurrency-cryptocurrency negotiations were listed in the report.
"It was a crypto-crypto trade (ie Bitcoin for Ethereum, Ethereum for Litecoin) .These are considered taxable events from what I understand.At any time I have ever cashed fiat and transferred any USD into my bank accounts from these exchanges".
The problem with tax reports in the United States is that if the reports are not filed with the IRS, the non-filing and non-payment of penalties may be imposed. Thus, taxes on returns must be recognized, and the trader must pay taxes accordingly.
The student revealed that a consultation with a tax attorney was scheduled to solve the problem.
"I have planned a consultation with a lawyer specializing in cryptocurrency and alternative investments, and I appreciate it a lot, in these last months I have tried mentally".
As an asset class at an early stage, fiscal policies related to cryptocurrencies still remain ambiguous in many regions and also complex in large markets such as the United States.
While companies such as Coinbase try to simplify the process for investors, unexpected situations could complicate the process of taxation of returns for investors in the cryptocurrency market.
Shutterstock foreground image. TradingView Charts.
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