Cryptocurrency Taxes

Cryptocurrency Taxes were never a thing, until recently. Nowadays, investors in these digital assets are required by law to maintain records of every transaction.

Until recently, cryptocurrency investors have mostly flown under the radar.

Those days are over.

many holders of virtual currency are scrambling to understand what they owe and how their investments may impact their tax bill.

The IRS has already requested the identities of those who hold substantial amounts of cryptocurrency.

It is only a matter of time until the tax agency broadens its scope. Just as with overseas bank accounts, the days of free riding in the cryptocurrency market are quickly coming to an end.

When the veil of secrecy got pierced for holders of Swiss bank accounts, wealthy individuals all over the world were shocked.

And a lot poorer

The anonymity of cryptocurrency and cryptocurrency tax is gone.

Recent events have shown that Bitcoin, Ethereum and the like are not as anonymous as advertised.  It is time to plan ahead before you end up saddle with serious tax debt.  

Here are some timely tax tips for cryptocurrency investors but before we get into it, we can help with cryptocurrency tax filing.

Do Not Assume Your Account is Too Small to Pay Cryptocurrency Taxes 

Only have a few hundred dollars in an exchange?

Think you’re exempt?

You’re not.

The IRS is getting better at sorting out data from exchangeshe.  The IRS will likely expand their reach beyond the most significant players in the marketplace.

As the reach of the tax agency broadens, more and more cryptocurrency investors will become ensnared in their net. 

All Cryptocurrencies Will Be Impacted Eventually

Bitcoin is the first, and most significant cryptocurrency taxes target.

Eventually the IRS will start poking around in other forms of virtual payment. Even if you have eschewed Bitcoin in favor of other cryptocurrencies, you should not expect a free ride from the IRS.

In fact, certain altcoins may garner considerably more IRS scrutiny.  Especially those associated with transactions on the dark web.

Not doing anything wrong?  Holding those altcoins could still get the attention of the IRS.

Cryptocurrency Taxes Preparation

Keep solid records.

Keeping extensive and accurate records will be essential going forward, but you might want to go back and look at your past purchases and sales. Every transaction, including purchases using cryptocurrency as payment, could potentially be a taxable event, so good recordkeeping is vital.

The IRS is interested primarily in the money you make on cryptocurrency, not necessarily on how many virtual coins you own. Calculating the cost basis, i.e., what you paid for the coins in the first place, can help you avoid paying too much in taxes while keeping you on the right side of the IRS.

Watch Out for Scams

The fact that cryptocurrency is in the IRS crosshairs has taxpayers worried. Unfortunately, the new tax scrutiny has also given rise to many scams, and it is essential for investors to prepare for the possibility.

These tax scams are likely to follow a familiar scenario, albeit with a cryptocurrency twist. The scam artist may call holders of cryptocurrency, claiming to be from the IRS and demanding immediate payment for taxes owed.

While the tax agency has taken a new interest in cryptocurrency investments, they do not initiate collection activities over the phone or via email. If you do owe money on your cryptocurrency holdings, you will receive a letter from the IRS, and possibly a bill as well. If you receive a threatening phone call or suspicious email, ignore it – or report it to the authorities and the IRS.

The cryptocurrency market is growing up, and the IRS has finally taken notice. After many years of flying under the radar, cryptocurrency investors are finally getting the attention of the IRS. Whether you were an early adopter or recently joined the virtual payment revolution, you need to prepare for the tax implications of this 21st-century investment. The sooner you get started, the less taxing the situation will become.

If need an expert tax advisor or are already in tax trouble, schedule a confidential consultation with us!