Cryptocurrency taxation has been a hot topic with the IRS for years. The IRS has been monitoring cryptocurrency for years. This is why the decision by the Internal Revenue Service (IRS) to enforce a cryptocurrency taxes further did not come to many as a surprise.
The IRS guidelines surrounding the filing of cryptocurrency taxes have left more people confused. The issue is the ambiguous nature of information on how to fill the crypto declaration segment on page 1 of the IRS Form 1040. This section requires taxpayers to declare if they have been involved in any crypto-related transaction within the past year.
However, the IRS issued new guidance on March 2, 2021 (by updating Question 5 of its FAQs) stating that investors need not answer ‘yes’ to the question if they purchased cryptocurrencies with real currency.
This means that if you simply bought cryptocurrency with USD and never sold or exchanged it then you do not have to check yes to this question. This is because cryptocurrency transactions are only taxable if you exchange cryptocurrency for fiat, another cryptocurrency, for a good, or for a service.
The best approach for crypto investors
The best approach for crypto investors is to seek professional guidance and consultation. Since the IRS does not currently have a formal voluntary disclosure program for cryptocurrency holders, seeking the services of an experienced cryptocurrency CPA can help investors protect their assets and avoid criminal charges.
Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transaction. It is important to consult with an experienced cryptocurrency CPA regarding your specific portfolio and/or business.
Here at Camuso CPA, we offer cryptocurrency tax services nationwide. Our team is highly experienced in cryptocurrency. We were the first CPA firm to accept cryptocurrency as a form of payment during 2017. Contact our team today to discuss your portfolio in detail here.