Cryptocurrency Tax Reporting Guide
We know that reporting cryptocurrency transactions on your federal tax return is probably the most confusing bit and that’s why we thought we’d provide you with this simplified cryptocurrency reporting guide.
There is an official notice from the IRS, but it dates back from 2014. Although, the tax law has recently been changed, no clarity is yet brought to light, whether or not the old rules in relation to cryptos will still apply. What are the rules? According to the statement issued by the IRS cryptocurrencies are considered properties for tax purposes, which means any gains from transactions with such are taxed as those from real estate, stocks or bonds. In addition the notice says:
“General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:
- Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
- Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
- The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
- A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.”
Now here the important things you need to remember when you are reporting your cryptocurrencies on your tax return.
- If you hold cryptocurrencies but haven’t sold any, you didn’t realize any gain.
- If you sold cryptocurrencies and realized gains or registered losses, it is your responsibility to report this to the IRS on the relevant form (1099-K in most cases, but contact your CPA or tax advisor to confirm). Coinbase won’t send you the form unless you’ve had $20,000 in gains and at least 200 transactions.
- Cryptocurrencies are regarded as property for tax purposes so you need to provide details about:
- The date you bought the crypto
- The price at which you bought the crypto
- The date you sold your cryptocurrency
- The price at which you sold the crypto
- Failure to report transactions will be penalized. The IRS may discover what you tried to hide later and you will still have to pay taxes with interest and penalties on top. If they suspect that you have deliberately omitted the crypto transactions from your report you could be prosecuted with criminal charges for tax evasion. This means you could spend up to 5 years in prison and pay up to $250,000 penalty.
- Keep good records of all of your crypto transactions. This will help you prepare your next tax return much more easily.
At FAS CPA & Consultants we offer expert advice on tax planning and filing. Even though the deadline for 2017 tax returns has just past, it’s never too early to plan for minimizing your taxes. Besides, some of you may have applied for extensions and US expats still have time till June 15th to file so if you are unsure about the proper way of reporting cryptocurrency transactions, contact us and we will happily assist you.
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