How does the government track crypto for tax purposes?

[DaC0nsumeR]

Obviously transactions on the blockchain are public and addresses can be tied to info provided by exchanges. But what about creating a second wallet or multiple wallets that are not connected to any exchange or traceable to an individual? Or can multiple wallets be connected (for example by Chainlink) in ways that I can't imagine because of my limited tech knowledge?

[BADecker]

Taxes are a trick. Become a State citizen.

Get a passport application. On it check the box that says you are not a U.S. citizen. But be sure to file citizenship with your State as a State citizen.

The States that have State income tax, base it on the Federal. But if you are a State citizen, and not a U..S citizen, you only owe State taxes, and not U.S. taxes. Since State taxes are based on Federal which you don't owe... no taxes.

But be sure to file any paperwork with any government agency in the way that tells them your State citizenship. Also, don't file any paperwork with government in any way that tells them you are a U.S. citizen... expecially IRS documents.

[semobo]

Obviously transactions on the blockchain are public and addresses can be tied to info provided by exchanges. But what about creating a second wallet or multiple wallets that are not connected to any exchange or traceable to an individual? Or can multiple wallets be connected (for example by Chainlink) in ways that I can't imagine because of my limited tech knowledge?

They are using bank accounts to trace the crypto earnings and in regulated countries people volunteerily pay their taxes for the profits they earned and that how taxation system works, but if you got some business accepting where cryptos are accepted which works in different ways.

[pakhitheboss]

You do not need to have technical knowledge for this information

Taxes are only applicable on Fiat currency. As soon as you convert your crypto to Fiat or Fiat to crypto you will be taxed. Conversion is only possible using an exchange and all exchange now days ask you to complete KYC. With exchange KYC government can trace you for tax.

Creating multiple wallets won't help you.

[Ucy]

Taxes are a trick. Become a State citizen.

Get a passport application. On it check the box that says you are not a U.S. citizen. But be sure to file citizenship with your State as a State citizen.

The States that have State income tax, base it on the Federal. But if you are a State citizen, and not a U..S citizen, you only owe State taxes, and not U.S. taxes. Since State taxes are based on Federal which you don't owe... no taxes.

But be sure to file any paperwork with any government agency in the way that tells them your State citizenship. Also, don't file any paperwork with government in any way that tells them you are a U.S. citizen... expecially IRS documents.

Interesting.
 I guess this is a loophole in the tax system, or no? Is the federal government aware of the method?  Has anyone had trouble with it? And do people who use the method benefit (or allowed to  benefit) from federal government in any way, like benefitting from federal infrastructures, federal employments, welfare programs etc?

[GazetaBitcoin]

Taxes are only applicable on Fiat currency. As soon as you convert your crypto to Fiat or Fiat to crypto you will be taxed. Conversion is only possible using an exchange and all exchange now days ask you to complete KYC. With exchange KYC government can trace you for tax.

That's why you should always avoid KYC, besides other reasons (these ones are listed below). You should use p2p trades with other individuals, cash-in / cash-out ATM machines or decentralized exchanges.

As for the other reasons, you can learn more here:
- Why KYC is extremely dangerous – and useless
- Governs are coming for the traders!.

[boyptc]

Obviously transactions on the blockchain are public and addresses can be tied to info provided by exchanges. But what about creating a second wallet or multiple wallets that are not connected to any exchange or traceable to an individual? Or can multiple wallets be connected (for example by Chainlink) in ways that I can't imagine because of my limited tech knowledge?

In some countries, you can voluntarily declare your income so that your income tax will depend to your declaration.

And if you're worried about this, avoid those exchanges that's requiring you to pass on kyc.

[Pachacouti]

To answer the question, How does the government track crypto for tax purposes? The answer is simple: Geo-tagging using ads-streams. 

[optimisticcm]

Most governments that have applied taxes on crypto profits believe in your filing of record of hodl or profits they will only confirm or track if they find something suspicious, i guess.

[odolvlobo]

Obviously transactions on the blockchain are public and addresses can be tied to info provided by exchanges. But what about creating a second wallet or multiple wallets that are not connected to any exchange or traceable to an individual? Or can multiple wallets be connected (for example by Chainlink) in ways that I can't imagine because of my limited tech knowledge?

The tax collector is going to have a tough/impossible time tracking taxable events if they are not done on exchanges or through other companies that track customers.

You didn't mention which country. That is very important.

In the U.S., residents and citizens must pay U.S. taxes on gains. Currently, the IRS relies on the taxpayer to be honest, but they can also get information from U.S. exchanges and companies. If they suspect that you are not paying taxes, they may investigate you further. You don't want the IRS to investigate you, so it is probably better to be honest.

... Become a State citizen. ... check the box that says you are not a U.S. citizen ... if you are a State citizen, and not a U..S citizen, you only owe State taxes ... State taxes are based on Federal which you don't owe... no taxes.

I doubt that works since you are subject to U.S. taxes if you live in the U.S., whether you are a citizen or not.

https://www.irs.gov/businesses/taxation-of-nonresident-aliens-1

[Negotiation]

Obviously transactions on the blockchain are public and addresses can be tied to info provided by exchanges. But what about creating a second wallet or multiple wallets that are not connected to any exchange or traceable to an individual? Or can multiple wallets be connected (for example by Chainlink) in ways that I can't imagine because of my limited tech knowledge?

The government will not be able to track crypto for tax purposes because even if the transaction system of crypto is improved through blockchain technology it is not taxable taxes are usually for fiat currency because it is under government control. however if the exchanges through KYC do not seem traceable to you then it is better to refrain.