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Research by Stockholm-based cryptocurrency tax calculator Divly suggests that an alarming number of cryptocurrency investors are not paying taxes on their cryptocurrencies. The study estimated the tax payment rate for cryptocurrency investors in various countries worldwide and found that globally, just 0.53% of cryptocurrency investors declared their cryptocurrency activity to their local tax authorities in 2022.
The study used a combination of government figures and search volume data to estimate the tax payment rate by country.
The study found that tax payment rates on cryptocurrencies vary by country, with Finland having the highest rate at 4.09% and the Philippines having the lowest rate at 0.03%.
In the United States, the study estimated that just 1.62% of cryptocurrency investors reported their crypto as part of their tax declaration in 2022. This is a doubling of the compliance rate found in earlier data published in 2018 by Credit Karma.
Despite an upward trend in the number of cryptocurrency taxpayers, the number of individuals failing to report their cryptocurrencies remains high. The low tax compliance rate has significant implications for governments and tax authorities, as it suggests that a substantial amount of tax revenue is going uncollected.
Barriers to Filing Cryptocurrency Taxes
One significant barrier to individuals paying taxes on cryptocurrency is a lack of understanding about the tax implications of cryptocurrency transactions. Many individuals may need to be made aware that they are required to pay taxes on their cryptocurrency holdings or gains, or they may need help understanding how to report these transactions on their tax declarations properly.
Furthermore, the difficulty of tracking transactions can also be a barrier to tax compliance. With the use of multiple wallets, exchanges, and other platforms, it can be challenging for an individual to keep track of all the transactions and report them accurately.
Another barrier is the anonymity and decentralization of the cryptocurrency market. Because cryptocurrency transactions are often made anonymously without a central authority overseeing them, it can be difficult for tax authorities to track them.
Divly’s CEO Carl Gärdsell has the following advice for those looking to declare their cryptocurrencies.
“First and foremost, it is essential to keep accurate records of all cryptocurrency transactions, including the date, the type of cryptocurrency, the amount, and the value in your local currency. This will make it easier to report gains and losses when it comes time to file taxes.
To make the process easier, I’d recommend using tax software that can track cryptocurrency transactions and calculate gains and losses. This can save time and ensure accurate tax reporting.
For those who need help with how to report their cryptocurrency transactions or have complex tax situations, it is advisable to consult a tax professional. They can assist in navigating the tax laws and regulations related to cryptocurrency and ensure that the correct amount of taxes are paid. “
Cryptocurrency Regulations Continue to Develop
Governments around the world are stepping up their efforts to implement regulations on cryptocurrencies. Just this May, the BZst published its regulations for cryptocurrency taxation in Germany.
Enforcement of cryptocurrency tax regulations is also on the rise. One example of this is the recently proposed amendment to the EU directive on administrative cooperation (DAC 8), which would implement new requirements for crypto service providers to share transaction information with local authorities.
There is a clear indication that governments are taking steps to ensure that individuals and businesses are paying taxes on their cryptocurrency holdings and gains. As regulations continue to evolve and governments place more emphasis on enforcement, we can expect compliance rates to increase across the globe.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.