Ben Franklin once said “Nothing is certain except death & taxes”, to that point, if you were enjoying the blockchain currencies and you forgot to pay your dues during 2016 and 2017, the 3 years statute of limitation may or may not give you a leeway to getaway without worrying about the unpaid taxes because while I am writing this blog uncle Sam in Washington DC is putting it all together to make sure that crypto taxes are paid in full, the bottom line here is cryptocurrencies traders and dealers will be getting a whole lot of attention from the Internal Revenue Service and from President Biden who appear very determined to crack down on tax workarounds & loopholes because of the need to raise money, relatively quickly, for an ambitious economic agenda mainly to fund the Build Back Better infrastructure bill. Plus, the IRS chief claimed that the country is losing about a trillion dollars every year in unpaid taxes, and he credits this growing tax gap, at least in part, to the new trend of converting to crypto.
The federal government is so convinced of the potential for income from back-due taxes and the White House wants to give the IRS both financial and political support to straighten crypto non-compliant traders, including those parking their cash in crypto.
Usually If the IRS spend a buck on any type of enforcement activity, they expect to make 500% return, yet I have a feeling the return on investment this time is going to be huge.
How to enjoy the crypto "verse" and comply with the IRS simultaneously?
If you trade through a brokerage platform, you typically get a 1099-B form, most of the crypto exchange platform will start generating 1099-K / 1099- B / 1042-S spelling out your transaction proceeds and income and profits.
Cryptocurrency is treated as property or a capital asset by the IRS that's why any capital gains you may make on your virtual assets are subject to the tax principles and regimes of a property.
While this concept is relatively simple, it isn’t always clear for many traders what constitutes a “taxable event”.
Is buying dogecoin with your bitcoin a taxable event? Purchasing a TV with your dogecoin? Buying an NFT with ether?
The answer is YES, all of the above are technically taxable events.
“The government says if I buy something with crypto, it is as if I liquidated my crypto no differently than if I sold any other property,”
Mining dogecoin for fun qualifies as self-employment income in the eyes of the government. And the income is taxed based on your bracket.
Crypto miners have to pay taxes on the fair market value of the mined coins at the time of receipt, while there are ways to get creative to minimize this tax burden, like business expenses and deductibles also earning interest on the bitcoin sitting in your crypto wallet also counts as income and is taxed.
Get in Touch with Voyage licensed tax consultant
With the large volume of transactions that crypto exchange platforms see every day, it can be hard to maintain a record of every transaction throughout the year and then use this data to stay in compliance with the IRS requirements.
At the end of the day, if you do not have all your tax information in one place, you might be at the risk of either undervaluing or over-estimating your tax liabilities.
Press the link and get in touch with Voyage licensed tax consultant to make sure you only pay your fair share of your tax liabilities if any, and we will also discuss what are the available strategies that are allowed for your unique situation to help you reduce your tax obligation and maximize your savings.
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