Picture this: You’ve been dabbling in cryptocurrency – Bitcoin, Ethereum, maybe even a few of those meme coins. You’ve made some decent trades, seen some gains. Life is good. But there’s that nagging feeling in the back of your mind – did you handle the taxes on all those crypto transactions the right way?
Lately, headlines about the IRS ramping up crypto tax investigations haven’t exactly eased your concerns. You hear about others (maybe some neighbor got a letter) facing the consequences of unreported crypto activity, and suddenly, those tax questions become impossible to ignore.
The IRS is shining a bright spotlight on crypto tax evasion, and they’re not playing around. In fact, they’ve seized over $3.5 billion in crypto and started thousands of investigations related to financial wrongdoing and tax evasion. The days of crypto quietly existing off the radar are over.
If that’s you, don’t panic. But also, don’t bury your head in the sand either. Now’s the time to address the situation. As a tax resolution professional who specializes in helping folks navigate IRS issues, I see it all the time. The excitement of crypto investments overshadows the crucial element of tax responsibility.
So, let’s get down to business and clear the air about crypto tax reporting:
First, know that buying cryptocurrency with regular currency isn’t a taxable event, thankfully. It’s the selling crypto part that brings in tax obligations. Gains are taxed as income, with short-term gains potentially facing higher rates than long-term gains.
Trading one crypto for another counts as a sale. You’ll need to calculate any gain or loss at the time of the trade.
When you receive crypto as payment or mine it yourself, it is considered income and will be taxed accordingly.
Now, don’t let the anonymity of blockchain technology fool you. The IRS has ways to track your transactions so that they can keep track of how much you’re obligated to the IRS for in terms of crypto tax. Popular exchanges cooperate with the IRS by providing information, and they have sophisticated tools to analyze financial movements across various wallets.
Take the Illinois man who was sentenced to 10 years in prison for running a Ponzi scheme using Bitcoin in 2020. He solicited investors with promises of high returns but used their funds for personal expenses. However, the key point here is that the investigation also revealed the man failed to report his own personal gains from the scheme on his tax return, ultimately leading to additional tax fraud charges.
This serves as a stark reminder: not reporting crypto activity, even outside of illegal activities, can have serious consequences.
Now, mostly, people like you aren’t running these kinds of schemes, but if you realize you might have missed reporting some crypto activity on past tax returns, don’t worry.
You can amend your returns. Take proactive steps to correct the mistakes before the IRS comes knocking. You’ll likely face penalties and interest, but it’s far better than a full-blown investigation.
Get the help of an experienced tax professional. Feeling overwhelmed? Consult a professional experienced in navigating IRS issues and crypto tax complexities. I can guide you through the best course of action, including exploring voluntary disclosure programs the IRS offers in certain situations.
Let’s face it, crypto tax laws can be tricky. But the worst approach is ignoring them altogether. Don’t risk your financial future by burying your head in the sand.
Reach out to me today. I can help you understand your situation, navigate the complexities of crypto tax reporting, and get on the right side of the IRS.
Remember, a little effort now can save you a world of stress (and a hefty financial burden) down the road.
To staying compliant,
Karen S. Durda, EA
