As published on finance.yahoo.com, Monday 24 May, 2021.
President Joe Biden is looking to crack down on tax evasion from high-income and crypto earners alike through his American Families Plan. Biden is looking to both zero in on wealthy taxpayers who avoid taxes by hiding income and increase the capital gains tax for all assets — including digital ones.
Biden has often spoken of his goal to eliminate tax havens and create more income transparency to reduce tax evasion. Last Thursday, the U.S. Treasury Department released a report which detailed Biden’s compliance initiatives that seek to close the “tax gap.” The Treasury Department claims the gap, the difference between taxes owed to the government and taxes actually paid, totaled nearly $600 billion in 2019 and amounts to about 15% of overall taxes owed. If left unaddressed that amount could rise to $7 trillion over the next 10 years.
The report added that underreported income is the biggest contributor to the tax gap, and with more efficient tax collection, $700 billion in revenue could be raised in the next decade according to the department.
Most employees report their taxes on a W-2 form, and their employer acts as a third-party verifier of that income and employee — leaving the chance of tax evasion in this case small. Business owners and other business entities like sole proprietorships on the other hand, self-claim their taxes and have no third-party verification. Biden’s tax plan calls for a tightening of third-party reporting to the IRS, which the administration says is among the most effective ways to improve tax compliance, CNBC reports.
Also included in Biden’s tax plan is a major overhaul of crypto asset reporting. Biden’s plan would necessitate cryptocurrency transfers of $10,000 or more to be reported to the IRS and subject to tax. The treasury said the new reporting regime would go into effect in 2023 to give financial institutions time to prepare. It was also stated that digital assets pose “a significant detection problem by facilitating illegal activity broadly including tax evasion.”
Currently, Bitcoin and other digital coins are classified as property and subject to capital gains taxes, meaning you only owe taxes when those gains are sold. You still need to report the income yourself though, and given the capability to buy and sell crypto on platforms outside of the U.S., evading the appropriate tax can be quite simple.