The US tax authority, the Internal Revenue Service (IRS), has been collecting taxes on profits made by bitcoin owners for some time now. However, it appears that very few Americans have declared their bitcoins to the tax authorities.

In November last year, the IRS filed a request in court to seize customer data from Coinbase, a US bitcoin buying and selling service. This with a view to finding bitcoin users who have not declared their bitcoins to the authority.

In America, tax must be paid on the profit made on every sale of bitcoins, or when paying with bitcoins. This profit is the difference between the purchase price of the bitcoins and the price at the time it is sold or used for a payment. This way of taxing works well for large investments, where profit can easily be calculated once upon sale. However, this is impossible for bitcoin users who make everyday payments with it.

If one has bought one bitcoin for $ 1000, and after a year wants to pay for a cup of coffee with it, while the price has now reached $ 2000, tax must also be paid on the cup of coffee paid on the 100% profit on the bitcoin itself. When people make multiple payments in one day, and have to keep track of the bitcoin value of all purchases and sales and then declare it to the IRS, the fence is off.

Recently, The CryptoCurrency Tax Fairness Act was created. This law proposes to exclude transactions under $600 from this reporting obligation to the IRS.

This exception of smaller amounts may ultimately help the IRS gain more insight into the tax-paying bitcoin user. A report from the IRS shows that only 802 users have declared their profit on bitcoins.

Curious how bitcoins are taxed in the Netherlands? We have listed this for you in a previous article.