Talking Tax
Is Anyone Paying State Taxes on Bitcoin and NFTs?
Oct 4, 2023
Experts discuss the challenges of taxing cryptocurrencies and NFTs, the reliance on voluntary compliance, and the limited enforcement. IRS initiatives to tackle the tax gap in virtual currencies and the lack of clarity in state taxation of digital assets are also discussed. The chapter highlights the volatility of markets for NFTs and cryptocurrencies, the need for regulatory and tax clarity, and the potential of the digital assets space. The necessary adaptations that states should make in terms of regulation and taxation for cryptocurrencies and digital assets over the next five years are emphasized.
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Quick takeaways
- There is a significant tax gap in cryptocurrency transactions, with estimates ranging from 10 to 12 billion dollars in the United States alone, highlighting the need for improved enforcement and compliance measures.
- States should consider taking steps to tackle tax gaps individually and acquiring relevant data, such as analyzing IRS data to identify taxpayers with crypto transactions and implementing crypto-related questions on state tax returns.
Deep dives
The Tax Gap and Lack of Compliance with Cryptocurrency Taxes
There is a significant tax gap in cryptocurrency transactions, with estimates ranging from 10 to 12 billion dollars in the United States alone. Currently, tax collection relies heavily on voluntary compliance, and there has been limited enforcement. Recent data from the IRS suggests a non-compliance rate of almost 75% in the crypto space. Despite the bear market, there is still substantial activity in the crypto space. The lack of clarity in tax regulations and limited data make it challenging to accurately calculate and collect taxes on cryptocurrencies.
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