Bitcoin, Cryptocurrency and Taxes? It's Reality!
Crypto's Time Has Finally Come
It's hard to believe that Bitcoin is now over ten years old! The crypto world has changed a lot in the last ten years. It's changed a lot in the last ten months for that matter! One of those changes has been the realization that cryptocurrency transactions should, in fact, be included when you file your taxes. For the first time starting on tax returns filed in 2020, the IRS now specifically asks if you've made any digital currency transactions in the past year.
The 2017 IRS case against a top crypto exchange, Coinbase, highlights the fact that exchanging cryptocurrencies might not be as anonymous as we hoped it was. The courts required Coinbase to provide the IRS with details regarding their users' cryptocurrency transactions. Not only was Coinbase required to provide their users' transaction details, but they were also required to provide that information going back all the way to 2013! It stands to reason, that this may be the tip of the iceberg as far as exchanges being required to retroactively report client data to the IRS.
More recently, the IRS has warned of audits and in IR-2018-71 , said, "taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions." But let's not be so negative. You're probably here to try to figure out how to make things right with the IRS.
Top 5 Reasons to Report Cryptocurrency On Your Tax Return
1. You're legally required to
2. The IRS may be more lenient towards people who proactively report their crypto gains
3. Reporting your crypto transactions now can help you establish a basis to lower future tax bills.
4. If you lost money investing in cryptocurrencies, you could use those losses as a tax deduction
5. If the IRS discovers you failed to report crypto income, it will cost your MUCH more later.
We Can't Ignore Cryptocurrencies Any Longer
For years people have put off reporting Bitcoin and cryptocurrency transactions on their tax returns for a multitude of reasons. Reporting Cryptocurrency income on a tax return is something new and most people, including professional tax preparers, don't even know where to start.
The IRS considers cryptocurrency to be an asset similar to gold, but what if you earned cryptocurrency through mining? What if you received crypto through airdrops? What happens if you're an active crypto trader? If you traded on an exchange overseas, will that matter? How should you handle a hard fork? Each of these situations has unique tax consequences. We can help you sort it all out, and get you the deductions you deserve.
At Free Financial, we recognized that cryptocurrency had created a new and complicated challenge for taxpayers. So while other tax preparers hope to keep ignoring cryptocurrencies, we've spent time investing in cryptocurrency, researching tax cases, and undergoing extensive cryptocurrency tax training in order to be able to help you file the most accurate cryptocurrency tax return while paying the lowest allowable tax.