Tax experts believe that the support of cryptocurrencies in the PayPal payment system will lead to confusion and complicate the process of filing a tax return.
Recently, it became known that in the next few weeks, American PayPal users will be able to buy, sell and store cryptocurrencies. The US Internal Revenue Service (IRS) treats bitcoin and other cryptocurrencies as property, so every purchase, sale, or exchange of a digital asset must be subject to capital gains tax.
Given that PayPal will allow you to pay with cryptocurrencies for goods in 26 million stores around the world, even the usual purchase of coffee for bitcoins via PayPal implies an increase or loss of capital, even if only a few cents. Settlements with sellers will be made in fiat currency, so each time users ‘ digital assets are converted into cash, a tax liability will be created.
Stephen Turanchik, a tax lawyer at the law firm Paul Hastings and a member of the American Institute of Chartered Public Accountants (AICPA), believes that in this case, the financial statements will become a real “headache”. A wide variety of payments with conventional and digital currencies in the PayPal and Venmo services will complicate reporting. Tracking all transactions, as well as the associated capital gains or losses, will be very difficult, especially if users combine corporate and personal payments on these platforms.
Lisa Zarlenga, co-head of the tax division of Steptoe & Johnson LLP, said that over time, the number of small purchases for cryptocurrencies will grow. But, regardless of the amount spent, such transactions will be taxed.
Certified auditor Kirk Phillips (Kirk Phillips) believes that the support of cryptocurrencies in the PayPal system will contribute to their large-scale implementation. However, in order for the services and their users not to have problems with the tax authorities, it is necessary to work out the issue of filing tax reports in more detail. As a payment operator, PayPal must file Form 1099-K to users and the IRS if the account holder’s total income exceeds $20,000, and if the user makes more than 200 transactions in a calendar year.
Even if all users can view their transaction history and account statements through their PayPal account, this may not be enough to generate tax reports. Users will have to track the base price at which they bought the cryptocurrency, how much they spent on it, and how long they stored it before selling it.
Recall that this week, the IRS made changes to the taxpayer reporting form and provided examples of transactions that users must disclose information about.