Don’t Get Caught Without Time: How to File a Tax Extension for Your Digital Asset Returns
Digital asset transactions, such as those associated with cryptocurrencies, can be complex and intricate. The details of these transactions are often difficult to trace due to the decentralized nature of blockchain technology. As such, gathering all necessary documentation and transaction histories can be a daunting task. Furthermore, digital asset holders must also collect their 1099 forms (B, K, etc.), which can be time-consuming if there is a high volume of transactions. This difficulty in compiling all relevant information can cause considerable delays when filing tax returns based on digital asset holdings or income. Fortunately, cryptocurrency taxpayers who find themselves in this situation have the option to file for a tax extension.
A tax extension is an approved request from the Internal Revenue Service (IRS) that allows individuals or businesses more time to file their taxes beyond the traditional April 15th deadline. It’s very common for cryptocurrency and digital asset taxpayers to file extensions. Typically an extension lasts six months from the original due date; however, it does not offer additional time to pay any money owed to the IRS. As such, taxpayers should still estimate what they will owe and pay it before or on the April 15th deadline, regardless of whether they have already been granted a tax extension.
While requesting a tax extension for your cryptocurrency tax return can provide relief from meeting tight deadlines, digital asset holders must consider all potential scenarios before doing so. If sufficient time exists to compile documents and properly report digital asset transactions, then there would be no need to take advantage of an extended deadline, as this could result in unnecessary fees or penalties being assessed by the IRS for late payment and filing issues.
Pros and cons of filing a tax extension for digital asset tax returns
Filing a tax extension for your digital asset tax return can benefit those struggling to gather the necessary information or do their accounting in time to meet the traditional tax return deadline. It allows taxpayers an additional six months to complete their filings and submit them without being subjected to penalties. As long as they make an estimated payment by the original deadline, they can avoid owing interest charges on any unpaid taxes that may be due.
On the other hand, filing a tax extension does come with some drawbacks. Interest will accrue on unpaid taxes if the estimated payment is not made by the original deadline, increasing what is owed overall. Additionally, taxpayers are still responsible for submitting accurate figures in the end, and if mistakes are made, this could lead to potential penalties and fines.
How to file a tax extension for digital asset tax returns
To apply for a tax extension for a digital asset tax return, cryptocurrency taxpayers must fill out Form 4868: Application For Automatic Extension of Time To File U.S. Individual Income Tax Return which can be found online at the IRS website, downloaded from software providers or filed by your cryptocurrency accountant or digital asset CPA. They should provide an accurate estimate of their taxable income as well as how much they expect their total taxes paid and owed by entering this information in Part II on page two of Form 4868 before submitting it directly to the IRS or through a software provider before the April 15th deadline passes each year. If approved, taxpayers will receive confirmation of acceptance. They will have until October 15th (six months) to complete their filings and submit them without incurring any late-filing penalties from IRS.
In conclusion, filing a tax extension for your digital asset tax return can give taxpayers more time to complete their digital asset tax returns accurately while avoiding potential late-filing penalties from the IRS; however, it may come with some drawbacks, such as incurring interest charges on unpaid taxes if no estimated payment is made by original filing date unless otherwise stated by law or regulations differ in individual’s state of residence.
About Camuso CPA
Camuso CPA saves you money, time and peace of mind.
We save digital asset investors and Web 3.0 businesses thousands and cumulatively millions with effective tax planning strategies, accurate accounting and proactive advice.
At Camuso CPA, all our clients are digital asset investors and digital business owners. We’ve developed cryptocurrency specific expertise that allows us to provide tailored solutions to our clients in ways most other firm simply can’t.
Camuso CPA was one of the first CPA firms in the industry to provide their clients cryptocurrency accounting services and tax advisory. Camuso CPA was also the first CPA firms to accept cryptocurrency as a form of payment for professional services.
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