The IRS may collect a $25 billion check from all the income generated as a result of the cryptocurrency market boom of 2017.
2 hrs ago
Although the number of cryptocurrency holders in the United States is not overly large, the taxes they owe might amount to quite the heap.
According to Fundstrat market strategist Tom Lee, the total tax liability of US households related to gains made during the cryptocurrency boom of 2017 is around $25 billion.
He arrives at this number by assuming that nearly a third of all holders are US persons. Since the market capitalization of all cryptocurrencies grew by $590 billion, 30% of that would be $177 billion.
Considering the average capital gains made in households across the country, Lee believes that Americans generated $92 billion in taxable cryptocurrency earnings. Providing for an equal amount of long-term and short-term gains, the average rate is split down to 27%.
The end result is a $25 billion tax bill.
The number is obviously an estimate, but it may be close to what US citizens can expect to owe in total. However, the Internal Revenue Service (IRS) will not necessarily get that money.
A recent report by Credit Karma revealed that fewer than 100 out of 250,000 Americans who had filed their taxes early reported any cryptocurrency earnings.
The company also found that only 0.04% of Americans are even aware they should pay any taxes on these types of gains.
There is also a liquidity problem related to paying one’s taxes on capital gains. Since they were made using an asset not recognized by the IRS as legal tender, crypto investors now have to sell those assets to have the fiat liquidity for the payment.
“We believe selling pressures have been amplified by capital gains tax-related selling this year. If this is correct, we should see improved dynamics after April 15th,” Lee wrote.
These sell-offs might also contribute to Bitcoin’s decline in price.
Over the next few weeks, we may expect the IRS to begin flexing its muscles and cracking down on “delinquents” who do not pay their taxes on cryptocurrencies. Many people who didn’t know they had to pay such taxes could end up in the crosshairs of the agency.
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