Remember in 2017 when Bitcoin had a massive price increase and cryptocurrency gained popularity? Well, many people still buy and sell cryptocurrency, and the IRS is hunting them down.
Cryptocurrency is a relatively new currency, so there is little guidance on how to handle this income. If you own cryptocurrency and have not sold or traded any, you shouldn't worry just yet. However, the IRS still expects for cryptocurrency owners to report profits and losses. Any profits made on cryptocurrency are subject to a capital gains tax, and that percentage can reach to 37 percent of the profits.
As of now, the IRS is sending out notice letters to 10,000 cryptocurrency owners to remind them they may not have reported all of their income. Forbes and The Tax Adviser are all warning cryptocurrency owners about the seriousness of the letters the IRS has sent them. While an article from CBS News explains that you still have time to file an amended return, more serious IRS actions could appear in the future.
It is best to go ahead and handle your cryptocurrency taxes as soon as possible. Since cryptocurrency is so new, the IRS understands the confusion when reporting this income. If you failed to report any cryptocurrency income, you could be in more trouble so you should be filing your amended return immediately.
For some guidance on how to pay taxes on your cryptocurrency, here are a few tips from CNN Money's article, 4 Things to Know About Your Cryptocurrency at Tax Time:
1. Keep track of every transaction. You should know when you bought and sold as well as your buy price and sell price. Make sure this information is saved and easily accessible during tax time.
2. Cryptocurrency companies may not send you a 1099 tax form or even notify you that you need it. Set a reminder to file these taxes when tax time arrives.
3. Don't hide any transactions. If you fail to report your cryptocurrency, you could face criminal prosecution. However, if you try to file your cryptocurrency taxes and mess them up, file an amended tax return before you receive an audit notification.
When cryptocurrency was new and exciting for many people, they probably didn't expect the tax implications to be so severe and challenging. There isn't much guidance on how to file your cryptocurrency taxes at the moment, but hopefully, that will change soon.