Crypto is popular and it has become a means of trading, savings and further investment. It has been growing so fast and so vast that now people are wondering are and if they are going to have issues with governing bodies regarding it.
You know that something has grown into a very serious story when IRS is trying to acquire information about it in any way possible. When you have an authority like the IRS calling for you to report all your incomes including the cryptocurrency then you know that your crypto, Bitcoin, in this case, is growing both in popularity and in usage cases.
We all knew that Bitcoin will become a replacement to some and a means of savings and trading to others. Whatever for and however you use your Bitcoin when it comes to authorities like the IRS you have to know certain things. Law changes every day. It is a live matter and it is subject to change and adaptation. This is why most of you are uncertain if and how they have to report their Bitcoin in their next tax report.
If you want to learn more about crypto and where its future lies visit www.techtimes.com. In the meantime, stick with us and see does Bitcoin have to be reported to IRS, how and why!
Most of us right now are wondering can the IRS track crypto? When it comes to this you are going to find yourself in one out of three situations and it will all depend on which company or platform you are using. So, depending on who your crypto account is with here are the three situations:
- Your activity will be reported meaning that the IRS will know everything about your buys and sells and how much money you made from them.
- No reports on your activity mean that the IRS will have no visibility on your crypto transactions and they will not be able to have insight into your gains or losses, but the difference here is if they wanted insight into these, they can get them.
- No reports at all. This means that even if the IRS wants an insight into your trades and your balance of crypto, this information will not be provided.
Let’s try and explain these situations a bit deeper so you understand what they are all about. In the first case, the IRS knows and sees everything regarding your crypto transactions and balances.
This is because you get issued a 1099B tax form that immediately allows IRS all this information. If you trade and invest on the RobinHood platform you will immediately be issued a 1099B form and it is going to tell you how much money you made, all about your transactions, and basically, every transaction will be dissected and tracked.
As far as situation number two goes here your activity is not reported by your platform for trading and investing, but can if the IRS asks for it. Coinbase is a very good example of this type of platform that does not volunteer your transaction and account information to the IRS, by issuing you that 1099B form.
Binance is another good example of this which is why these platforms are so popular also. One thing to know is that although they don’t issue those tax forms right now, it doesn’t mean that they won’t in the future, so pay close attention to that. The third situation here is about your information not being reported to the IRS and even if they ask for those, they won’t be given.
This situation goes for most foreign exchanges. One good example of this is KuCoin, which is an exchange that is not US-based and this means that they will not, and are not required to create US-tax-based forms. This also means that your information is safe from the IRS even if they send KuCoin a court order for that info, the most likely scenario that will happen is – nothing.
Now, depending on the platform of your choice these are the stations that can happen to you. Let’s try and tell you what will happen if you fail to report your crypto activity depending on these situations, meaning depending on the IRS probing and trying to get you.
In the first situation, the IRS knows everything. The platform you used issued you a 1099B tax for which you filed out and the copy of that form went straight to the IRS from the platform.
Now in this case if you don’t report your activity and if you don’t attach it to your tax return you are getting an automatic IRS letter and nobody wants that. Since everything is computerized and if any information from you does not match up with their system it means you get an automatic red flag and a very uncomfortable letter from the IRS.
The second situation is also a bit tricky. The trick part is that you can try and evade paying taxes for a while but since this info can be provided to them if they issue a court order then you will be in a world of trouble.
You will end up paying all your taxes for the period they audit you and you will also pay interest and penalties for the same period. The penalties will depend on time, meaning how much time has passed and how much taxes have you owed in that period.
The third situation is the save heaven for every one of you that are looking to ditch paying taxes for your crypto transactions and gains. The IRS will not go down without a fight and you can be sure of that. They have several techniques of trying to get you, like:
- They can wait until you try to exchange your gains from a foreign-based institution to one that is US-based like Coinbase. Most of you don’t think about this but if you try to exchange the Bitcoin you gained on KuCoin into USD on Coinbase you are eligible for an audit if the IRS has a reason for that.
- Cashing out your crypto gains to USD on your bank account will also leave a paper trail that is easy to follow and access. This would also make an audit very uncomfortable.
- Warning letters are kind of a scare tactic from the IRS where they will send warning letters to people to properly report their crypto incomes and trades to void audits, and for the most part that also works out for them.
In a conclusion, we do not condone any type of legal activities regarding your tax state and tax evasion. Be a good citizen and always report all your taxes the way they should be and if you do not know how to do that hire someone for that because it will save you from a lot of problems down the road.