It’s impossible to miss advertisements or news headlines urging you to get on the cryptocurrency bandwagon. Or, alternatively, warning you about the risks of trading in crypto. Whether you’re excited or scared by cryptocurrency, the IRS defines it as an asset that is subject to the same capital gains and loss rules as a security. That means that if you sell cryptocurrency or receive it in payment for goods or services, you are required to report that transaction on your income tax return. Oh, and pay income taxes on the income.
You’ve been required to answer a question about cryptocurrency transactions on your tax return since 2019. IRS forms for 2022 ask for more information about receiving, selling, or exchanging crypto to help the tax agency track down taxpayers who should be reporting income or capital gains. They are also ramping up investigations of customer records from digital currency brokers. So much for crypto being anonymous and untraceable!
Last month, there was an enthralling article from CNBC.com about how the IRS is making cryptocurrency reporting compliance a high priority. In 2021, Congress passed the $1.2 trillion bipartisan infrastructure law, with a provision requiring tax reporting for digital currency brokers starting in 2023. The IRS will use that information to match against tax returns filed by applicable crypto customers. It’s beyond likely that some of the funds from the recently passed Inflation Reduction Act of 2022 will augment the IRS’ resources to do all that matching and following up on unpaid taxes.
Regardless of which companies report activity to the IRS, you should be proactive about reporting any cryptocurrency income. That includes this year and any past year when you sold, exchanged, or received cryptocurrency. If you haven’t reported cryptocurrency income on past tax returns, you should take corrective action ASAP. It’s much better to come forward and file an amendment than for the IRS to audit you for not reporting crypto. It’s also a good idea to consult a qualified tax professional.
If you want more details about IRS actions to track down taxpayers who have not reported cryptocurrency transactions on their tax return, read the full article here. It’s worth the time. https://www.cnbc.com/2022/09/26/what-the-latest-irs-crypto-tax-records-summons-means-for-investors.html
Want to know more about how the IRS defines cryptocurrency? Check out their link here. It goes into a lot of detail about reporting requirements that could come in handy after you read the CNBC.com article. https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies