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It's tax season, and the U.S. Internal Revenue Service is cracking down on those who have invested in cryptocurrencies over the past year. Taxpayers find themselves in a bit of a bind as the April 17 deadline looms as they try to better understand capital gains.
Why I Should be Worried
According to reports from Fundstrat’s analyst Tom Lee, cryptocurrencies represent roughly 20 percent of last years U.S. capital gains.
From Bitcoin.com News:
Cryptocurrencies were a great investment last year, and the tax man is interested in individuals who cashed out into fiat raking in some gains. The reason for this is because the U.S. Internal Revenue Service (IRS) treats cryptocurrencies as a commodity-like investment vehicle, which is subject to the nation’s tax laws. Further, nearly every bitcoin or alternative digital currency transactions, which includes the collection of airdrops, trades, spending, and almost every type of exchange is considered a taxable event for U.S. citizens.
If trapped in this quagmire, remember you do have options.
File an Extension
The most important thing for taxpayers to know is that they must file. Still, there's no need to panic just yet. Taxpayers can simply file for an October 15 extension, which affords them another six months. Because the IRS does require payment by April 17, taxpapers should send an estimate of at least what they owe outside of any cryptocurrency gains. You will be charged interest on the difference between what was paid and what is still owed come October 15.
Get on an Extension Plan
There is an entire industry devoted to helping folks get on tax installment plans and/or reduce tax payments. In fact, if you owe under $50,000 installment plans are available up to 72 months (six years). While the IRS generally will not need a financial statement, they may need some financial information from the taxpayer.
Hide
Okay, not recommended. Most of the U.S. based entities that deal in cryptocurrencies act in the same way as a financial institution. If your money has flowed through there, the IRS has ways of finding out. Most cryptocurrency wallets do not open themselves up to such scrutiny. As such, this is akin to keeping cash under one's mattress. If you plan on converting cryptocurrency into U.S. dollars via your linked bank account, that money must be claimed on your taxes.
Of course you can hope there won't be an IRS audit. Just remember that nobody knows the type of enforcement the IRS might incorporate in the future. If you've gotten away with not claiming your cryptocurrency profits for a period of years, the IRS can AND WILL come after you for those prior years.
- Gilbert Horowitz, Gambling911.com
