Bitcoin was a hot topic in 2017 as the digital currency revolutionized the way people do business online. Last December, in fact, Bitcoin reached a trading peak of over $19,000 and enjoyed other gains. It’s not surprising that a lot of people became interested in cashing in on the investment — and you might be one of them.
There’s no problem enjoying the benefits of your bitcoin investment. But if you invested in this cryptocurrency in 2017, you probably owe the Internal Revenue Service (IRS) taxes.
The Bitcoin Tax Reluctance
Despite months of reminders to pay their cryptocurrency taxes, American Bitcoin investors aren’t taking their taxes seriously, reports Fortune. According to the news, only .04 percent of US tax filers reported their cryptocurrency profits and losses to the IRS. That’s lower than the 7 percent of the estimated total of Bitcoin owners in the country.
The numbers reflect the reluctance of today’s investors in reporting their cryptocurrency taxes. Not paying up, however, can have consequences.
If the IRS discovers you failed to report or under-reported your income, you will face a monthly failure-to-pay penalty of 0.5 percent. Payment starts right after the month your taxes were due. Apart from the monthly penalties, there is another failure-to-pay penalty of 5 percent plus interest. The IRS can also convict you of tax fraud — even for your cryptocurrency.
It’s illegal to intentionally not include your cryptocurrency investment in your tax return. And if you think your anonymity as a Bitcoin investor will save you from being detected by the IRS, you are sorely mistaken. They can track you down through your online trail.
Reporting Cryptocurrency Taxes
Abajian Law does not recommend taking risks with your taxes. Instead, we encourage you to keep on the right side of the tax law by paying what you owe.
Start with the following:
- File your Form 8949 and report all capital gains from your Bitcoin and cryptocurrency investments. It’s important to have a record of all your transactions, including the date of your Bitcoin purchase and the price you paid for it, as well as the date of any cryptocurrency sales and profits you made from the sale.
- Remember to include every Bitcoin transaction. Tax law does not only cover those times you sold or bought Bitcoin for traditional currency, after all. It also includes small transactions (e.g., buying coffee with Bitcoin).
- Before you file for your capital gains, check the details first. Scan the form and make sure you are accurately reporting all cryptocurrency transactions.
- Keep your records. When the IRS questions your cost basis, you’ll need documentation to prove it. Failure to prove your cost basis will result in taxed gross proceeds.
Do You Need a Tax Attorney’s Help?
Taxes can be complex, especially with the virtual investment trends like Bitcoin and other cryptocurrencies. Instead of weaving through the process alone, it is better to have a professional by your side.
Maximize the Bitcoin’s benefits by paying your taxes properly. Vic Abajian and his team of tax attorneys can guide you every step of the way. We help you file your taxes, prevent tax misreporting, and ensure you have accurately reported your income for the past year.
Get in touch with us today to learn more about our services.