On 15 January 2019, Credit Karma, a multinational personal finance company, published a piece showing the findings of a survey targeted at American Bitcoin (BTC) investors to learn about their BTC investments and whether they intend to report realized gains or losses to the IRS (Internal Revenue Service), which is the revenue service of the U.S. federal government.
The survey was conducted online in November 2018 by Qualtrics, an experience management company, on behalf of Credit Karma. Responses were obtained from BTC investors of age 18 and older.
According to the survey, investors who have sold part of or all their BTC sustained realized losses of approximately $1.7 billion, while those who still hold onto the digital asset in hopes of the market regaining its former glory in the future experience unrealized losses of approximately $5.7 billion.
Moreover, only 53% of the BTC investors plan to report their gains or losses from their BTC selling in their taxes. The survey also shows that 59% of investors who earned profit from the cryptocurrency plan to report their gains on their taxes, which is higher than the percentage of investors who intend to report their losses on their taxes, which is 38%.
The piece published by Credit Karma stated that investors could be missing out if they do not report their losses in the coming tax season. According to the piece, at an average loss of around $718 per investor, they could “claim capital losses as a tax deduction”. Investors could potentially obtain a relevant tax break if they claim the losses sustained from BTC as capital losses and apply for a tax deduction up to $3,000.
There are multiple reasons to why investors are not planning to report their gains and losses from BTC. Out of the following investors, 55% did not find it necessary to report their gains or losses due to how little the amount was, 35% did not believe that they were required to do so, while 22% did not have the knowledge on ways to report their gains or losses. An additional 5% wrote other less popular answers.
It is surprising how majority of the investors did not plan to report gains or losses on taxes due to the lack of knowledge regarding the issue. More efforts should be put into educating investors on crypto-related taxing so that investors will be able to accurately file their tax returns. In fact, the study showed that 58% of investors with realized gains and 53% of those with realized losses stated that with knowledge on the rules of crypto-related taxing, there is a bigger possibility that they will report their investment activity for taxing purposes.