In a major blow to the privacy and anonymity of cryptocurrency users, the Internal Revenue Service (IRS) has obtained a court order to force Kraken, one of the largest and oldest Bitcoin exchanges in the world, to hand over the personal data of its customers.
Kraken is one of the largest and most popular crypto exchanges in the US. It allows users to trade over 50 different cryptocurrencies and offers advanced features such as margin trading, futures, and staking. To report your crypto transactions on Kraken, you need to download your transaction history from the platform and calculate your gains and losses for each trade.
You can use a third-party software or service to help you with this process, or do it manually using a spreadsheet. Once you have your gains and losses calculated, you need to report them on Form 8949 and Schedule D of your tax return. You also need to check if you have any foreign account reporting obligations, such as FinCEN Form 114 or Form 8938, depending on the value of your crypto holdings on Kraken.
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The Internal Revenue Service (IRS) has issued a summons to Kraken, to provide information on its users who engaged in transactions worth $20,000 or more from 2016 to 2020. The IRS is seeking to identify and tax individuals who have not reported their income from crypto trading. Kraken has not yet responded to the summons, but it is expected to comply with the law and protect its customers’ privacy as much as possible.
The IRS treats cryptocurrencies as property, not as currency. This means that every time you buy, sell, or exchange crypto, you trigger a taxable event and have to report the capital gain or loss on your tax return. The amount of tax you owe depends on your income bracket and the holding period of the crypto. If you held the crypto for more than a year, it is considered a long-term capital gain and taxed at a lower rate than short-term capital gains, which apply to crypto held for less than a year.
Crypto taxation can be complex and confusing, especially if you have a lot of transactions or trade on multiple platforms. Here are some tips to help you stay compliant and avoid penalties from the IRS:
Keep track of your transactions and records throughout the year. Don’t wait until the last minute to gather your data and calculate your taxes.
Use a reliable and secure software or service to help you with your crypto tax reporting. Make sure it supports Kraken and other platforms you use, and that it can handle different types of transactions, such as margin trading, staking, or airdrops.
Review your transactions and reports carefully before filing. Make sure they are accurate and complete, and that they match the information on your Kraken account.
File your tax return on time and pay any taxes due. The deadline for filing your 2023 tax return is April 15, 2024, unless you request an extension. If you owe taxes, you can pay online or by mail using various payment options offered by the IRS.
The summons requires Kraken to provide the IRS with the name, address, phone number, email address, taxpayer identification number, account statements, and transaction histories of its users who meet the criteria. The IRS claims that this information is necessary to identify and correct the underreporting of income and payment of taxes from cryptocurrency transactions, which it estimates to be in the billions of dollars.
However, many cryptocurrency advocates and experts have criticized the IRS’s move as an invasion of privacy and a violation of the Fourth Amendment, which protects against unreasonable searches and seizures.
They argue that the IRS is casting too wide a net and requesting more information than it needs to enforce tax compliance. They also point out that cryptocurrency users have legitimate reasons to value their privacy and anonymity, such as avoiding censorship, discrimination, or persecution.
Kraken has not yet commented on the court order or indicated whether it will comply or challenge it. However, in the past, Kraken has been vocal about its commitment to protecting its users’ rights and interests.
In 2016, Kraken refused to comply with a similar request from the New York Attorney General’s office, which sought information on its operations and customers as part of an investigation into cryptocurrency exchanges. Kraken’s CEO Jesse Powell said at the time that the request was “insulting” and “unconstitutional”.
It remains to be seen how this legal battle will unfold and what implications it will have for the future of cryptocurrency and its users. For now, many Kraken customers are likely feeling anxious and betrayed by the IRS’s attempt to access their personal information.