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Cryptocurrency Accounting

Cryptocurrency Tax & Accounting Due Diligence

Cryptocurrency taxes and accounting are crucial when it comes to protecting your assets and bottom-line from the IRS. Reporting your cryptocurrency transactions on your tax return is only your first step towards compliance with the IRS.

You need to ensure that you are not only properly reporting your transactions in the correct character and format to the IRS but you must also ensure that your accounting calculations are accurate and verifiable. It is also important to properly account for your cryptocurrency transaction due to the cumulative nature of cost basis tracking.

Below we go over some important due diligence steps to take when accounting and reporting your cryptocurrency transactions for taxes. It is important to work with an experienced cryptocurrency CPA like Camuso CPA when handling this process, the steps below are important to ensure the quality of your accounting and reporting when working with a professional.

Documentation

The first step to ensuring the integrity of your cryptocurrency accounting and tax filings is documenting your transactions. The first step in this process is downloading all of your transactions from all centralized exchanges and consolidating all decentralized transactions based on the addresses used. You should save these files in your records for at least 7 years.

After completing your cryptocurrency accounting your final documents should include gain/loss information that shows your detailed gain/loss for the relevant tax year. Additionally, your final documents should include that shows your detailed cost basis information for the relevant tax year. It is important that these data sets include an audit trail which shows where the source of each transaction came from based on your source records.

Wrong Accounting Methodology

After your documentation is in order the next step is ensuring you choose the correct accounting method to remain compliant with the IRS. Generally, we recommend FIFO for this. The explanation for this is outside the scope of this article but you should consult with a tax professional and understand the basis and tax implications regarding your accounting method selection.

Unmatched Transactions

After completing your calculation, you should review your gain/loss calculation in detail. To start this process, review the cost basis information for each sale, if any of your cost basis are 0 this will require further investigation. This usually indicates an issue with the calculation which could be related to missing transactions, incorrect valuations, or accounting errors. To address this you will have to review the facts and circumstances regarding the specific asset and sale that has a 0 cost basis.

Checking All Valuations

The next step in this process is to review the valuations assigned to the proceeds for each individual sale. You should review this to ensure that the fair market value you assigned to each sale to arrive at your total proceeds are accurate. If this is inaccurate it can result is an inaccurate gain/loss and cost basis.

Ending Balances Off

After completing your calculation, you should review your cost basis calculation in detail To start this process, review the ending total coin level balances of each cryptocurrency you hold against your actual holdings to ensure this balances are accurate. If this is inaccurate it can result is an inaccurate gain/loss and cost basis for future tax years. This usually indicates an issue with the calculation which could be related to missing transactions, incorrect valuations, or accounting errors. To address this you will have to review the facts and circumstances regarding the specific asset that has an inaccurate ending calculated cost basis.

Reporting Cryptocurrency

After completing your cryptocurrency accounting and due diligence you can then include your cryptocurrency transactions on your tax return. It is crucial that you report your transactions in the correct format. This is out of the scope of this article but keep in mind that investment income, staking income, mining income, business income and other sources of cryptocurrency transactions will get reported on different parts of the return, have different tax implications and informational requirements.  

Cryptocurrencies are in an unusual middle ground where the IRS is now cracking down on them, but even many licensed CPAs are struggling to understand the new tax law. So, to navigate, it’s important to not only find a professional in tax law, but one who is current on cryptocurrency tax law as well. Here at Camuso CPA, we have all the knowledge necessary to save you as much money as possible on your cryptocurrency tax returns. That puts us on the cutting edge of a brand new financial trend. When it comes to protecting your investments in the form of cryptocurrencies, Camuso CPA is one of the few CPA firms that can work with you to ensure you are compliant with tax law.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  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 as one of the first CPA firms working in the space since 2016. 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.

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IRS Summons Circle For Taxpayer Information

Cryptocurrency taxation has been a hot topic with the IRS for years. Despite popular opinion, the IRS has been monitoring cryptocurrency for quite some time. This is why the decision by the Internal Revenue Service (IRS) to seek information from Circle on all U.S. taxpayers who traded at least $20,000 worth of crypto between 2016 and 2020 should come as no surprise.

This is another step forward for the IRS is positioning itself to audit cryptocurrency taxpayers.

Most past actions by the IRS have been to provide further clarification on the tax guidance related to cryptocurrency transactions then taking actions to detect taxpayers who are not reporting their cryptocurrency activity.

The IRS has also recently announced they hired a cryptocurrency tax software company to assist in data analysis and tax calculations for audits of taxpayers with cryptocurrency.

In the past we have seen John Doe summons to collect data on taxpayers at cryptocurrency exchanges including Coinbase, Kraken and other major exchanges. Additionally, we have seen a question added to the top of the 1040 form in recent years asking if any time during the previous year, they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.

The best approach for crypto investors

The best approach for crypto investors is to seek professional guidance and consultation. Seeking the services of an experienced cryptocurrency CPA can help investors protect their assets and avoid criminal charges.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  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 as one of the first CPA firms working in the space since 2016. 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.

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How NFTs and Cryptocurrency Are Taxed

With the significant surge in popularity of digital marketing and non-fungible tokens (NFTs) recently, people are asking more and more questions about NFTs and cryptocurrency taxes. For the past few months, NFTs have been surging in popularity. Various platforms allow thousands of creators and artists to sell their work as NFTs. The following is a guide on how tax is imposed on NFTs. 

Taxation on NFTs

NFTs are taxed just like the other cryptocurrencies. NFTs act very similarly to some other types of properties such as real estate or cryptocurrency. If you are familiar with cryptocurrency tax, you will be able to understand NFT taxation easily. When you purchase an NFT this will establish your cost basis based on the purchase price. When you sell the NFT in the future, the sale price will be subtracted from the purchase price to arrive at your capital gain or loss.

If you are a creator the taxes will work differently for you. Usually, you will be taxed on the income you receive from selling the NFTs at ordinary income tax rates.

How Taxes Work For Creators:

If you are a creator, you will be taxed when you will sell those NFTs in the marketplace. When you sell these NFTs, you will be subject to income tax. Your earnings will be taxed as ordinary income. As a creator you can deduct any business related expenses realted to your business.

How Taxes Work For Investors:

Here, the taxes work quite differently as compared to the creator.

 If you are an investor, the taxes would be similar to that of cryptocurreny trading. For example, buying NFTs using the cryptocurrency and then selling them would generate profit, and ultimately all of the profits are subject to capital gains tax rules.

 

Exchanging NFTs for Cryptocurrency

Whether you are buying or selling NFTs you are usually exchanging them for Eth or another cryptocurrency. It is important to understand the cryptocurrency tax implications in addition to the NFT tax implications.

As an investor, if you exchange Eth or another cryptocurrency for an NFT that will trigger a taxable event for the sale of your cryptocurrency. Any time your exchange cryptocurrency for a good, service or other cryptocurrency you are creating a taxable event. Based on the current price of the cryptocurrency you are exchanging and your cost basis you will recognize a gain or loss when you exchange cryptocurrency for an NFT.

As a creator, if you sell an NFT for Eth or another cryptocurrency this can trigger two potential taxable events. The first as covered above will be that you will be taxed at ordinary income rates for the Eth you receive for the NFT based on the current fair market value. If you hold this Eth after selling the NFT, when you sell the Eth you will recognize a capital gain or loss based on the current value of the Eth and your cost basis at the time of recipet.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transaction, particularly NFTs.  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.

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IRS Hires Crypto Tax Software Company For Audits

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 cryptocurrency tax laws, are known to have been historically complex for cryptocurrency investors, miners and traders.

The IRS has recently announced they hired a cryptocurrency tax software company called TaxBit as a subcontractor to assist in data analysis and tax calculations for audits of taxpayers with cryptocurrency.

This is another step forward for the IRS is positioning itself to audit cryptocurrency tax payers.

Most past actions by the IRS have been to provide further clarification on the tax guidance related to cryptocurrency transactions then taking actions to detect taxpayers who are not reporting their cryptocurrency activity.

In the past we have seen John Doe summons to collect data on taxpayers at cryptocurrency exchanges including Coinbase, Kraken and other major exchanges. Additionally, we have seen a question added to the top of the 1040 form in recent years asking if any time during the previous year, they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.

This subcontract relationship with a cryptocurrency tax software company shows the next step that will allow the IRS to calculate and verify taxpayers capital gains calculations even if they have reported their transactions to ensure this is accurately reported.

The best approach for crypto investors

The best approach for crypto investors is to seek professional guidance and consultation. Seeking the services of an experienced cryptocurrency CPA can help investors protect their assets and avoid criminal charges.

Wrapping Up:

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transactions.  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 as one of the first CPA firms working in the space since 2016. 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.

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Cryptocurrency Tax Return Questions on Page 1

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.

 Wrapping Up:

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.

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How Is Kentucky Offering Tax Breaks For Crypto Miners IN 2021?

The cryptocurrency tax laws, are known to have been historically complex for cryptocurrency investors, miners and traders. There haven’t been many legislations that are entirely dedicated to the cryptocurrency mining businesses. Several issues regarding the earnings, investments, savings, and taxation of the cryptocurrency mining industry haven’t been addressed by lawmakers in extensive detail.

However, things are now gradually changing and US lawmakers are trying to improve the legislation associated with the cryptocurrency tax and cryptocurrency mining businesses. In this brief article, we’ll take a look at how cryptocurrency earnings have been traditionally taxed so far. We’ll also discuss the new cryptocurrency tax breaks that have been legislated by the State of Kentucky and what is the driving force behind the new law.

General Tax Laws For Crypto Mining Earners

The cryptocurrency earnings have been classified and taxed as property. While these rules are easy to understand and follow due to their common practice, they haven’t been able to address some key issues regarding cryptocurrency mining.

In general, all expenses associated with a cryptocurrency mining operation including electric, hardware, software, wages, etc. are tax deductible.

Tax Breaks Offered By The State Of Kentucky

The state of Kentucky is giving tax breaks to cryptocurrency miners. According to a recently signed bill, cryptocurrency miners can get tax exemptions by investing at least 1 million dollars into the cooling systems of their plants. These cooling systems are integral to cutting down the energy utilization of cryptocurrency mining plants. This is a great opportunity to get additional tax benefits for investments into cryptocurrency mining operations.

You can expect further changes to various other taxation laws relating to cryptocurrency taxes and cryptocurrency mining.

Wrapping Up:

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.

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Cryptocurrency Taxes & Decentralized Finance, Tax Guide To Trading, Lending, Borrowing

The cryptocurrency industry, and as a result, cryptocurrency taxes are constantly evolving. Decentralized Finance (DeFi) is a rapidly growing area of cryptocurrency that provides access to financial services, including trading, borrowing, and lending, without middleman like traditional financial institutions. This has provided many financial options for traders and long-term holders.

As with any evolution of cryptocurrency transactions, it is important to understand the tax implications of Decentralized Finance activities. Cryptocurrency tax is generally a tough topic for many investors and even tax professionals. Since the IRS has not given specific guidance for DeFi, this article is based existing cryptocurrency tax guidance and our interpretation of current tax laws.

If you are not familiar with the taxation of cryptocurrency transaction, read our Cryptocurrency Tax Guide before reading this article on the tax implications of various DeFi transactions.

How To File Cryptocurrency Taxes for Your DeFi Transactions

Our team at Camuso CPA can import data from Decentralized Finance platforms to calculate your interest, lending income, capital gains and losses. All that is required to start this process to the have the ETH addresses that were used for your transactions.

Cryptocurrency Tax Advantage & Disadvantages for DeFi Transactions

There are many tax benefits to using DeFi that you will read throughout this article as we cover different facets of decentralized finance. Some of the most notable benefits include borrowing against your cryptocurrency as collateral to maintain tax holding periods, avoid triggering taxable events by borrowing, rebalancing portfolios without triggering taxable events and favorable tax treatment with some lending protocols treated as capital gains.

There can also be potential drawbacks to Defi including unexpected income generated from token distributions and taxable events triggered wihen minting tokens.

Cryptocurrency Lending: Providing Cryptocurrency In Return For Interest

If you lend cryptocurrency or contribute it to a lending platform you will be liable for income that you earn for lending the cryptocurrency. Lending your cryptocurrency does not trigger a taxable event as if you sold your cryptocurrency, but the income you generate will be taxable.

The income you earn usually will be taxed as ordinary income but can also be taxed as capital gains depending on the facts and circumstances of the platform you are using.

If you are using Liquidity Pool tokens, these are scenarios where you may be liable for capital gains rather than ordinary income. This is due to the nature of liquidity pools, when you add or remove liquidity the transaction is structured like a token swap rather than income.

When transactions as taxed as capital gains this can offer potential tax benefits. The benefits include, being able to offset capital gains with losses and holding for long-term periods to receive favorable tax rates.

It is important to consult with an experienced cryptocurrency CPA regarding each individual Defi Platform and their tax treatment.

Cryptocurrency Borrowing: Receiving Loans for Cryptocurrency as collateral

Cryptocurrency loans offer great tax advantages for investors that are seeking liquidity without realizing taxable events or liquating their holdings. If you borrow using your cryptocurrency as collateral, you don’t realize tax on the cryptocurrency used as collateral since this is not a sale of cryptocurrency.

As long as your cryptocurrency is not sold or exchanged for another cryptocurrency, you will not realize a taxable event.

A risk associated with borrowing cryptocurrency is that if the value the cryptocurrency used as collateral goes down too much, or if the value of assets borrowed increases too much then you’ll trigger a margin call / liquidation. This would be treated as if you sold your cryptocurrency for dollars and will trigger a taxable event.

Cryptocurrency Taxes for Governance and Incentive Tokens

Many DeFi platforms now utilize governance and incentive tokens which are earned as income. When these types of tokens are distributed they will be taxed as ordinary income at the current market value. This value will also establish your cost basis. If you sell this token after holding it you may also realize a capital gain or less depending on the price of the token at the time of sale.

Wrapping Up

Taxpayers should very carefully consider all the cryptocurrency tax factors while participating in any cryptocurrency transaction, particularly DeFi.  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.

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United Kingdom Issues Cryptocurrency Tax Guidance

Here at Camuso CPA, we offer a wide array of tax services for cryptocurrency investors including tax preparation and tax planning. Financial service companies are transitioning from employee driven revenue models to information driven revenue models. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

The United Kingdom’s tax agency has released an explanation of how it sees cryptocurrency assets and how individuals will be taxed on their holdings. The report focuses on how individuals possessing cryptocurrency might be taxed,but does not outline the tax structure for tokens held by businesses or for business purposes. Guidance on that will be published at a later date. Her Majesty’s Revenue and Customs (HMRC) is the government agency responsible for collecting taxes.

This does not impact US investors, but we watch all crypto tax regulation developments closely to gain insights to perspectives and circumstances that can impact future legislation here in the USA. Much like the US the UK tends to view crypto tax property for tax purposes.

The report notes a token’s treatment for tax purposes is dependent on the token’s use case, rather than its definition. Cryptocurrencies will not be taxed in the same way as gambling. The report goes into detail, explaining how and when their transactions may be classified as securities. To simplify the calculations required, taxpayers are permitted to pool different assets together.

Investors who purchase tokens specifically in the hopes that their value will increase will be required to pay capital gains tax when they sell, while individuals who receive tokens from their employers as a form of payment, from mining, transaction fees or airdrops will have to pay income tax and national insurance contributions.

Tax authorities across the world will continue to issue further guidance and focus more heavily on cryptocurrency tax compliance. We will continue to track these developments closely. Time will tell, but it will be interesting to see how things develop here in the states related to the designation of cryptocurrency as intangible property from the Private Letter Ruling in 2014.

Contact Our Team Today

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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End to Anonymous Cryptocurrency Trading by Shapeshift, A CPA’s Perspective

Cryptocurrency exchange Shapeshift is launching a new mandatory membership program that will now require users to provide personal information. Cryptocurrency exchanges are under more regulatory pressure than ever, with governments requiring that they conduct KYC and AML procedures to prevent fraud. As a centralized exchange, Shapeshift lacks the ability to operate without a license or some form of cooperation from local governments.

KYC and AML processes are the first step for both exchanges and users to begin moving towards compliance and disclosure to regulatory authorities. As exchanges such as Shapeshift move towards user registration compliance, we noted in a separate recent article that various countries across the globe have developed in international crypto tax force to target non-compliant cryptocurrency investors.

As the topic of institutional investors and Bitcoin ETFs continue to gain more relevance, we will undoubtedly start to see more centralized exchanges conform to the same demands that traditional financial institutions comply with in order to gain access to larger customers. Our prediction is that we will see further sweeping inquiries into user data from exchanges such as we saw last year with the John Doe request from Coinbase, additionally investors should expect to receive more 1099-K forms from exchanges in future years.

The change from being an ‘exchange without accounts’ to requiring personal information was made for 3 primary reasons:

1) The requests of many of our users to have account-related features: A record of transaction history, saved/whitelisted addresses, and email notifications, etc.

2) Increasing interest in the broad phenomenon of tokenization — the ability to “financialize” and bring liquidity to various aspects of business/customer relationships. Specifically, the ability to build tokenized loyalty programs, in which the engagement between a business and its customers can itself become an asset.

3) The practice of requiring customers to hand over personal private information is one we’ve struggled with since inception. To the extent that digital asset technology remains a legal grey area, we need to be prudent and thoughtful in our approach as we navigate the regulatory environment.

Contact Us Today

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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WHAT TO DO IF YOU STILL HAVE NOT REPORTED CRYPTOCURRENCY TAXES THIS YEAR

With an exponential gain in value and thousands of businesses now accepting it as a form of payment, Bitcoin has quickly become one of the trending topics throughout the country. While there are various types of cryptocurrency out there, Bitcoin is currently the most popular form of digital currency (also known as virtual or cryptocurrency) throughout the world and is able to be exchanged for U.S dollars, Euros, and other real currency. In addition, Bitcoin can be traded for other virtual currencies, such as Ripple or Ethereum currency.

Whether people use cryptocurrencies to pay for products and services or strictly for investment purposes, they may not be aware that they have a possible taxable impact. If you have not reported your cryptocurrency taxes this year, you are not alone. In this article, we are going to review cryptocurrency and taxes, as well as what to do it you still have not reported them.

Before diving into the details of digital currency and taxes, we wanted to ensure our readers that while this article provides helpful and detailed information, it does not constitute professional financial counsel and should not be used as a replacement for tax advice from professional CPA firms. As such, we recommend reaching out to local CPA firms for individualized service that is tailored to your unique tax situation.

Do You Have To Pay Cryptocurrency Taxes?

In the past, many cryptocurrency investors pocketed profits and avoided taxation by selling virtual currency and putting the money made back into other digital tokens. This method, and loophole so to speak, is known as a like-kind exchange. However, with the value of cryptocurrency taking off this past year, along with the profits of investors, the IRS is holding it down come tax season. In addition to closing this loophole that many crypto holders used, the IRS has stated that cryptocurrency is considered property and that selling digital currency should be reported as a capital gain or loss. But what does this mean? Well, this means that selling certain virtual currencies in exchange for another virtual coin, or even using cryptocurrency to buy goods and services, is considered taxable and therefore should be reported come tax season. It is mandated by law that you pay taxes on those earnings.

What Happens If You Do Not Report Cryptocurrency Capital Gains?

Some cryptocurrency investors, despite the IRS’s warnings, still choose to hide their profits by not reporting their capital gains from virtual currencies. This is no surprise, especially after a past survey revealed that over 35 percent of cryptocurrency owners claimed they do not plan on reporting any gains or losses on their tax return. What many investors in this percentage may not be aware of is that not reporting their capital gains and losses is a form of blatant tax fraud. Purposefully hiding profits and failing to report capital gains can enable the IRS to enforce numerous penalties, such as criminal prosecution, which is generally used in more extreme cases that involve larger profits and capital gains. Those that commit this tax fraud can potentially face up to five years in prison. What’s more, there is generally a fine up to $250,000. Similarly, crypto investors that purposely file a false tax return to hide capital gains may have to pay a $250,000 fine, as well as face up to three years in prison.

Of course, keeping track of all of the transactions made with virtual currency is not always easy. There are not any promises that distributed digital currency exchanges are going to send a Form 1099 that details your trades as well as your profits and losses. Not to mention, if virtual coins were used to pay for goods and services, that is a taxable transaction that you will have to handle entirely on your own. While crypto transactions can be complex, the IRS and government fully expect us to comply with the set tax guidelines for cryptocurrency. Failing to do so can lead to further complications and issues down the like.

What If You Didn’t Report Capital Gains From Cryptocurrency?

Failing to report your capital gains is something that happens more often than people think, whether it is accidental or purposely. However, reporting these gains is the law and should be done to avoid any trouble. If you failed to report any income or capital gains on your taxes, or if you are uncertain whether or not you compiled within the guidelines set by the IRS, there are certain steps you can take to reduce the risk of being fined, or worse, facing criminal penalties. The right thing to do in this situation is to file your tax return immediately and pay as much tax owed as possible to avoid any additional penalties. While it is dependant on which reporting requirements you are subject to, in addition to the nature of the noncompliance, if you did not report your capital gains it may be best to:

  • Create a corrected Form W-2 using Form W-2c if you paid people with cryptocurrency
  • File a corrected Form 1099-MISC if you paid independent contractors with digital currency.
  • File an FBAR, or a Report of Foreign Bank and Financial Accounts to disclose foreign digital currency wallets.
  • Enroll in the Offshore Voluntary Disclosure Program to help reduce any potential fines and penalties and avoid jail time.
  • Get help from a local tax consultant.

While taking these steps can potentially help reduce any fines and penalties, or even protect you from criminal prosecution, if you still have not reported your cryptocurrency income and capital gains, it is vital that you discuss your situation with an experienced tax CPA that specializes in Bitcoin and other digital currencies. If you have questions about reporting virtual currencies on your taxes, a certified CPA should be able to assist you.

What Happens If You Owe and Do Not File or Pay Your Taxes?

When your taxes are late or not paid, the IRS will assess a failure-to-pay penalty. This penalty goes into effect after the regular due date. Typically these penalties are a certain interest charge of the balance due for each month or part of a month you are late.

Once the IRS discovers that your taxes are late, they will begin to send you computer paragraph (CP) notices. These notices will show how much you owe and demand immediate payment. If no actions are taken, the notices will continue to pop up in your mailbox for two to six months. If you avoid the notices and still do not pay the owed taxes, the following can occur.

Tax Levy

When the IRS seizes your assets, it is known as a tax levy. A tax levy only happens when all forms of communication and arrangements are ignored. The final notice will be sent at least 30 days before further action is taken.

Wage Garnishment

A wage garnishment, also known as a wage levy, is when the IRS contacts your employment provider and demand a portion of your paycheck. This will occur during every pay period until the taxes are paid in full or a payment agreement with the IRS is reached.

Bank Levy

A bank levy is when the IRS contacts your bank. When this happens, your bank will instantly freeze your accounts so you are unable to take money out. If arrangements are not made, the bank will send money to the IRS about three weeks later. This of course is something that shouldn’t be taken lightly.

Asset Seizure

The IRS has the ability to seize various assets like vehicles, houses, boats, and other assets if the owed taxes are not paid and an agreement has not been reached. This is something you will want to avoid, as getting seized property back can often be a long and difficult process.

Passport Revocation or Suspension

Many people don’t know this, but the IRS can revoke or suspend the passports of delinquent taxpayers who owe more than $50,000 in taxes (including interest and other non-payment penalties). Not to mention, the State Department will likely not issue or renew your passport if you owe more than 50K.

Criminal Prosecution

If you continue to file a tax return year after year, or you avoid paying the taxes that you owe you could be faced with criminal charges. Criminal prosecution is typically tied to tax evasion or tax fraud and since the government prefers working with non-compliant taxpayers. Since proof of intent to defraud is hard to prove, the IRS looks will generally search for patterns of abuse before taking any case to a criminal investigation

Again, if you fail to pay your taxes, most of these penalties and negative consequences can be prevented by working with a tax professional or the IRS directly.

https://www.camusocpa.com/contact/#/

If you searching for local CPA firms in Charlotte to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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