The IRS is soon stepping into cryptocurrency and DeFi with new rules and regulations. While the new taxation rules aim to bring transparency to crypto transactions, this rule would impact or even defeat the purpose of DeFi systems. Let’s understand why.
What is DeFi?
DeFi, or decentralized finance is a new way of conducting financial transactions. One can conduct financial transactions in crypto in DeFi without banks or middlemen. It is built on blockchain technology. Thus, users are able to trade cryptocurrencies directly using smart contracts using platforms like Uniswap. DeFi is known and preferred for its decentralization, privacy, and freedom which makes it stand out from traditional finance.
New US IRS Filing Rules for Crypto Traders
As per US IRS, brokers using DeFi must collect and report user transaction data starting 2027. This includes collection of user transaction data, such as names, addresses, and trading activities. Furthermore, the IRS is demanding to get IRS Filing done by crypto traders.
Why Has The IRS Introduced Rules For Defi Crypto Traders?
The IRS is trying to make DeFi platforms follow the same tax rules as traditional banks and brokers for the following reasons:
- The IRS believes that many people using cryptocurrencies avoid paying taxes on their earnings. Therefore, they want to curb this billion dollars tax evasion and ensure crypto users pay their fair share.
- The IRS aims to plug the loopholes as the DeFi system grows and prevent crypto from becoming a tax-free haven.
- Traditional investments like stocks already have strict tax reporting rules. That’s why the IRS sees no reason crypto should be treated differently. The introduction of this new US IRS Rules for DeFi follows global trends to regulate crypto and align digital asset reporting with other financial instruments.
Read also: Avoid Common IRS Filing Mistakes
Conclusion
The IRS’s move to regulate DeFi is a bold step toward aligning crypto with traditional financial systems. However, it is also challenging and defeats the purpose of the DeFi. Meanwhile, DeFi and crypto traders should follow the rules and do IRS Filing on time so that they remain compliant and avoid legal penalties or punishments.
Moreover, If you want any other guidance relating to opening an LLC Company in the USA or filing taxes, or Company Registration in USA, please feel free to talk to our business advisors at 8881-069-069 .
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