Taxes and Privacy
So many threads have questioned and discussed the many confusing aspects of tax laws as they relate to cryptocurrencies. I completely agree with how confusing and unfair many of these hypothetical scenarios are, but I've rarely heard anyone mention one of the most important aspects of the cryptocurrency tax conflict. Privacy.
The elimination of central authorities from personal financial activity is perhaps the greatest aspect of cryptocurrency? Cryptocurrency truly frees people from intermediaries who's interests and motivations might not align with those of the individual. Shouldn't we have the right to personal financial sovereignty?
If I bought and traded crypto (anonymously, for example without using an exchange) but never cash out to fiat, then I'm the only one who know exactly what I hold. I should have the right to keep it that way. Even though I'm fully willing to pay my fair share of taxes, I don't want to compromise my privacy by giving anyone, whether it's my brother, my neighbor, my tax preparer, my boss or a government agency the information to track or keep tabs on my crypto holdings and trading activity.
I can't expect the irs to just take my word for my reported capital gains, especially in an audit situation. Yet I'm not comfortable sharing my crypto addresses to prove it. And, the irs doesn't exactly have the kindest reputation when it comes to giving taxpayers the benefit of the doubt.
Regardless of how much your crypto is worth, there are many good reasons to retain your privacy that have nothing to do with avoiding taxes. Any amount of wealth will make you a target for extortionists and thieves. Anyone knowing your crypto addresses can easily connect the dots to see who's political campaign you contributed to, whether you chose to use money for a trip to Vegas rather than donate it to charity, whether you conduct business with competing clients, or how much you paid for your house. And when the economy eventually collapses and the government is in dire straits, do you really want to be on their list of people holding valuable assets? People will judge you based on how you spend, and they will modify their behavior accordingly.
How can we comply with the irs to prove our gains and losses without forfeiting our privacy by revealing crypto addresses?
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