In the United States, the Internal Revenue System (IRS) is the government agency that is tasked with collecting taxes from each citizen’s worldwide earnings arising from legitimate transactions. Over the years, the IRS has implemented several rules and guidelines to ensure that the tax dues are paid timely.
While it is ‘easy’ to know that your salary from your job is taxable, other sources of income are less clear. Nowadays, one of the most common issues regarding this matter is taxing cryptocurrency earnings.
The Rise of Cryptocurrency
At this point, you have probably heard of several people and even companies that have made incredible amounts of money from their cryptocurrency investments, such as Bitcoin, Cardano, Dogecoin, Vechain, and other altcoins. But, what taxes are due on these massive gains and how will that be calculated and ultimately tracked?
If you consider yourself a cryptocurrency investor, then it is about time to think about how you can settle imposable taxes on your earnings. Whether you like it or not, the reality is that the IRS is starting to go after crypto investors. Recently, the US government proposed regulations that large crypto transactions need to be reported to the Treasury Department.
Take note that non-payment of taxes has significant of legal consequences, up to prison. Back taxes, penalties, and interest on tax due from a crypto investment could be costly if not properly addressed.
IRS Regulation on Cryptoassets
In the latest statement of the Treasury Department, the speaker emphasized that “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.” Clearly, the government is taking the necessary steps to ensure that cryptocurrency will not be used to perpetrate fraud and other crimes.
In the said statement, it was also highlighted by the Department that “Within the context of the new financial account reporting regime, cryptocurrencies and cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies would be covered. Further, as with cash transactions, businesses that receive crypto assets with a fair market value of more than $10,000 would also be reported on.”
The first thing that you have to remember is the under the law, it is treated as property.
Hence, the general tax principles and guidelines that are applicable to property transactions should also be observed in all cryptocurrencies. When you gain profits from your crypto trades and exchanges, the best thing to do is recognize capital gains and consider them a taxable transaction.
The failure to make such income declarations is punishable by law. The IRS has reiterated that people should start paying their taxes properly to avoid fines and other legal punishments.
This means a transaction where no actual US dollars are exchanged could result in taxable income. For example: You exchange $10 for 1 Shields Coin. Shields Coin increases greatly in value. You then exchange your 1 Shields Coin for a Tesla. The Tesla is worth $50,000. You just created a taxable event and could owe almost $10,000 in Federal Income taxes!
Whether trading crypto assets is something that you do for your business or as a hobby, you need to remember that all transactions made using this virtual currency have tax implications. You need to work closely with a tax professional and legal counsel to understand your situation come tax time!
Contact Timothy Shields at:
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DISCLAIMER: This article is provided as a courtesy and is intended for the general information of the matters discussed above and should not be relied upon as legal advice. Neither Kelley Kronenberg nor its individual attorneys or staff are responsible for errors, omissions and/or typographical errors – always seek competent legal counsel.