We’re still six months from having to file our taxes.
But it’s never too early to start thinking about what you may, nor may not owe.
Otherwise known as our “favorite time of the year,” it’s one of the life’s two certainties. And while we may find taxes to be… ahem, taxing, we can’t avoid it.
Unfortunately, the IRS isn’t so keen on your non-payment issues
However, if you’re aware of your tax issues, you can stay well off the radar of the tax guys.
“I think a lot of people who got in to cryptocurrency maybe didn’t even think about the tax implications,” says Janna Herron, a tax researcher at Value Penguin, as quoted by CNN.
If you’ve filed cryptocurrency tax returns before, you already know that it often requires a little more legwork than other assets. Cryptocurrency may not be legal tender, but it is still taxed, unfortunately. The IRS has made no bones about this, and they recently issued a reminder, as well as a warning about the consequences.
According to a section of IRS Notice 2014-21, “Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.”
When it comes to cryptocurrency, it’s considered property
Since the IRS determines cryptocurrencies to be property, you must pay taxes on it if you’ve realized a capital gain. You can lower your tax bill if you have a loss, however. Along the way, you’ll need information such as when you purchased the cryptocurrency, how much you paid for it, when you sold it, and what you did – or did not receive for it.
Of course, it’ll help to have a well-versed accountant when putting all this together.
In addition, keep a log. And don’t be foolish enough to think you can “hide” trades.
“It is never a good idea to try to skip out on your taxes,” notes CNN. “You really don’t want to hide anything from the IRS. In the future they may discover that you owe, there will be penalties and fines involved in that.”
Some exchanges try to make the process involving taxes easier
Coinbase, for example will organize your history into a year-end statement for taxes.
They’ll also compile the data on a cost-basis, which of course can be volatile. If all else fails, you can always do some chart-reading online to backtrack as long as you know the dates.
However, if you’re on several of the hundreds of exchanges out there, you may be aware that the prices aren’t always consistent. For this reason, cost-basis can often be the most challenging issue with cryptocurrency.
If you have questions concerning taxes, or need help, check with your accountant.
It’s better to be safe than sorry with the IRS.
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