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Crypto Weekly
The gain or loss is the difference between your purchase price, known as basis, and the value when selling or exchanging, and your tax rates depend on the length of ownership.
What happens if you fail to disclose crypto activity this tax season Kate Dore 'You're playing with fire if you don't report it.' POINTS TO NOTE
Your tax return includes a question about "virtual currency," making it clear you must report crypto activity.
If you fail to report transactions to the IRS, you may be subject to interest, penalties, or criminal charges.
If you don't report it, you're playing with fire," said David Canedo, a CPA and tax specialist product manager at Accointing.
Recent years have seen a significant expansion of the crypto ecosystem. Institutions such as the IMF embrace its innovations, but they also warn investors to exercise caution. Experts warn that hiding taxable activity could lead to IRS trouble. It may appear less appealing to report last year's cryptocurrency profits on your tax return after recent market dips.
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Bitcoin peaked at nearly $69,000 in November 2021, and Ether grew to almost $5,000 during the same period. While values dropped in December, many investors still had sizable gains. And the IRS has made it clear they are watching with a yes or no question about "virtual currency" near the top of the first page of your tax return. "That's where the hammer comes down because they can say that you lied on a government document under penalties of perjury," said Ryan Losi, a Richmond, Virginia-based CPA and executive vice president of accounting firm PIASCIK.
How crypto taxes work Cryptocurrency may be subject to capital gains when exchanged or sold at a profit. Swapping digital coins, cashing out for U.S. dollars, or even making a purchase may be taxable events, Losi explained.
If you held digital assets for more than one year, you might qualify for longterm capital gains rates of 0%, 15%, or 20%, depending on your taxable income. However, according to a CNBC survey, many crypto investors sell or exchange more frequently, triggering short-term capital gains, levied at regular income tax rates, up to 37% for top earners. What's worse, figuring out your basis to calculate your crypto tax bill may not be easy with limited reporting from digital currency exchanges.
What happens if you don't report taxable activity If you don't report taxable crypto activity and face an IRS audit, you may incur interest, penalties, or even criminal charges. It may be considered tax evasion or fraud, said David Canedo, a Milwaukee-based CPA and tax specialist product manager at Accointing, a crypto tracking, and tax reporting tool. While the chances of IRS scrutiny are lower with limited staffing, the agency may pursue more significant amounts of money, he said. For example, Canedo said there's a big difference between buying Bitcoin in 2012 and cashing out millions of dollars in 2021 versus small trades for $100 profit. But you still have to disclose everything regardless. "You're playing with fire if you don't report it," he said. Although the IRS has a three-year lookback for errors, Canedo said there is no statute of limitations for fraud. Another risk is whistleblowers, who can report missing activity to the IRS for a percentage of penalties collected, Losi from PIASCIK said. "The number one way the IRS finds out about tax cheats is a former business partner or former spouse," he said. CNBC
January 2022 | Volume 12
