October 15, 2021
“It's not burn baby burn, but learn, baby, learn, so that you can earn, baby, earn.”
-Martin Luther King, Jr.
Are you putting yourself at risk for audit and tax penalties?
The IRS is cracking down and new regulations are currently in the works. Letters have been issued to some taxpayers addressing tax reporting of crypto transactions in previous years. If you are one of those recipients, you should consult your tax records and consider amending previously reported returns accordingly. As regulations change and information sharing increases exposure and penalties may follow.
- Cryptocurrency is regulated by several Federal & State agencies including the SEC, CFTC , and the Federal Reserve. It has only been loosely addressed historically, but rapid change is imminent.
- Some may think that their investments in virtual currency are off-the-grid, however, realized gains from those transactions are acknowledged and taxable per the IRS in the same manner as gains from real estate sales.
- For the 2020 tax year, a question was added to page 1 of Form 1040 to address virtual currency. Those with cryptocurrency holdings or who transacted in virtual currency during the tax year should answer the question appropriately.
Are you aware of your tax liability and tracking your tax basis?
Whether you are a casual miner or a diverse portfolio holder, it is advised that you consult a tax advisor and consider investing in a crypto tax tracking software application to ensure your assets are correctly valued.
- Brokers may or may not issue year-end investment earnings forms for tax reporting, however, it is the investor's responsibility to keep an accounting of their portfolio.
- Knowing and maintaining your tax basis in each investment is an ongoing important function to avoid over-paying taxes. This involves knowing how much and when you made each initial investment.
- Capital gains taxes are required to be paid to the IRS on realized gains from sales of cryptocurrency. How much one pays is based on the length of time the investment was held and the investor's tax bracket. [Short-term (less than 1 year) investment gains are taxed at higher rates than long-term investments]
