Unless you're tax-evading bitcoin bull John McAfee, this is the time of year when Americans begrudgingly prepare to file their tax returns. To streamline this process, Big Four accounting firm Ernst & Young introduced a cryptocurrency tax tool.
Ernst & Young said it designed its EY Crypto-Asset Accounting and Tax (CAAT) program specifically for its clients who invest in cryptocurrencies. The accounting juggernaut said the U.S. rollout of the software is part of its strategy to become a leader in blockchain services.
"EY CAAT has the ability to source transaction-level information from virtually all major exchanges.
It consolidates data from multiple sources and allows for the automated production of various reports and dashboards, and preparation of IRS tax returns related to crypto-assets."
Coinbase Partnered with TurboTax in January
EY is following in the footsteps of Intuit, which teamed up with cryptocurrency exchange Coinbase in January. Under that partnership, Coinbase customers can import all their Coinbase transactions directly onto Intuit's TurboTax tax-preparation software.
The IRS released its initial guidance on cryptocurrency taxes in 2014, when the bitcoin price never topped $640. By 2017, the bitcoin price rocketed to a record high approaching $20,000.
The industry's meteoric growth caused mass confusion among bitcoin investors, many of whom claimed they didn't know they were required to pay taxes on their capital gains.
Lawmakers Urge IRS to Clarify Tax Guidelines
In September 2018, a group of U.S. lawmakers asked the Internal Revenue Service to provide updated guidelines on how taxpayers should report profits from their crypto investments.
In a strongly-worded letter, the lawmakers rebuked the IRS for not providing more clarity even as it aggressively pursued alleged tax evaders.
“More than a year after our initial letter [in May 2017], the IRS continues to expand its enforcement activities without issuing any further guidance for taxpayers.
We therefore write again to strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies.”
Here's What Is Taxed
Not every crypto transaction is taxed. According to TurboTax, you are required to report cryptocurrency as income if you did the following:
- Sold bitcoin (or any other crypto).
- Converted bitcoin to fiat currency.
- Used cryptocurrencies to pay for goods or services.
- Received free crypto through a fork or an airdrop.
Your transactions are not taxed if you:
- Bought bitcoin but never sold it.
- Gave crypto as a gift to a friend or family member, and the gift was less than $15,000.
- Purchased crypto with a Self-Directed IRA or Solo 401(k).
John McAfee Is On the Run for Tax Evasion
If you follow the aforementioned guidelines, you probably won't run afoul of the IRS like bitcoin evangelist John McAfee has.
As CCN reported, the IRS is hunting the software mogul after he admitted that he has not filed a tax return in 8 years.
In January, McAfee boldly declared that he would rather go to war with the IRS than back down because "taxation is theft."
Besides, McAfee — whose net worth once topped $100 million — said he has paid more than his fair share of taxes during his lifetime, and enough is enough.
McAfee then goaded the IRS, saying: "I have prepared my entire life for this battle. We will not be able to shrug off the yoke of this corrupt and insane government without a struggle...Here I am."
We declared our independence from Britain and fought a bloody war to escape burdensome taxes, yet here we are, less than 250 years later, being burdened by income taxes that are more crushing than anythung rhe British dreamed of. Free yourselves people!https://t.co/mYy6z06tHc
— John McAfee (@officialmcafee) January 4, 2019
McAfee: Free Yourselves from the Government
McAfee's defiant stance has made him a quasi-folk hero among some in the crypto community. Interestingly, being on the run from the law has not stopped McAfee from running for U.S. president.
Unlike his rivals, McAfee has an unusual campaign slogan: “Don’t vote McAfee.” The software pioneer says his goal is to champion cryptocurrencies and to fuel a populist, anti-government movement.
“My campaign platform contains one item: how do we free ourselves from a government that no longer serves us, but instead has become our master – controlling our every action.
It is a government that has gone insane. While we carry the burden of this government, we are not free. Any attempt to address national problems, of any nature, is doomed to failure. Until we free ourselves, we are powerless to create any real change."