How to pay your tax bills as the crypto market is plummeting?

Many US crypto investors are now unable to pay their tax bills because of the downturn of crypto market

The global crypto market cap reaches a high of slightly under $3 trillion in 2021, with the market leader, Bitcoin, topping at $69,000. Six months after the top, a long-term slump has sunk token prices, and dread now reigns supreme.

During the surge, US crypto investors reported massive gains to the Inland Revenue Service (IRS) for the tax year 2021. However, now that payment is due, some people who did not make the proper plans or consider the possibility of a drawdown are unable to pay.

Total crypto outflows have reached $1.812 trillion from peak to trough since November 2021, reflecting a -61% decline in market cap.

Following the de-peg of the UST stablecoin in May, the situation worsened. The Terra ecosystem collapsed as a result of this de-ped, causing misery among investors who had invested in the project.

The impact of the drawdown, according to Clinton Donnelly, founder of tax specialists CryptoTax Audit, “is the biggest issue in crypto right now.” Several of his clients are “terrified” of not being able to satisfy their tax responsibilities since they have lost more money than they owe the IRS.

“We have several clients who have just gotten wiped out, and they’re just terrified.”

In one example, a man made a $700,000 profit trading cryptos throughout the 2021 tax season. But he never considered cashing out assets or making arrangements for his tax responsibilities. Now that a large portion of his gains has vanished, he’s unsure what to do next.

“They don’t really know how to go forward on preparing the tax return. It’s a serious ethical quandary,” Donnelly said.

Crypto tax lawyer Andrew Gordon commented on the matter, saying that he receives daily phone calls from anxious crypto investors in the same situations.

Part of the issue is that, as compared to regular stock investors, crypto investors are “younger and less knowledgeable about finance.” Some crypto trading applications, such as Robinhood, make cryptocurrency trading a game, which Gordon believes creates a gap between trading and real-world consequences.

“They’re just playing around on some app and now they’re going to owe massively on taxes.”

In this circumstance, Gordon urges people to contact the IRS and “settle” for the amount the agency deems should be paid. Alternatively, set up a payment plan and pay down a specific proportion of the debt on a regular basis.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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