Pay Your Crypto Taxes – Cryptocurrency Earnings Must Be Declared
After a series of legal initiatives by various states to regulate crypto activities, the IRS issued a publication to all Americans reminding them of the mandatory disclosure of all profits made through the use of virtual currency.
The 17th of April (deadline for tax declaration) is coming up, this reminder is addressed to people that may forget (or simply aren’t aware) that they must declare any profits made using cryptocurrencies instead of FIAT.
According to an official statement, “virtual currency is treated as property for U.S federal tax purposes,” which means that the same legal considerations in general terms are applied to virtual currencies as they are to tangible properties.
This has also confused some people who comment on social networks that they don’t know whether crypto is an asset or a security – if they must be declared when exchanged for FIAT and not while holding, or even doubts about why are gains taxable if losses are not deductible.
The official criteria have been implemented since 2014 despite the evolution not only in legal regulation but also in uses and technological applications; something that has been highly criticized by cryptocurrency enthusiasts. Alex, a subscriber to Bitcoin.com comments on this:
“Question: Do you think that the U.S tax regime for cryptocurrencies is fair?
Answer: of course not, we are in the Year 2018 trying to use IRS regulations from 2014 where Virtual assets are equal’ed to Property, which doesn’t make any sense. They are new Asset Class and some states, most notably Wyoming, already created proper meaningful legislation.
It’s clear that SEC and IRS are creating fear and chaos intentionally as they are very scared of cryptocurrencies replacing fiat.”
However, despite the negative opinions, the IRS has shown a rigid attitude towards the subject, even long before the efforts to regulate cryptocurrencies became “mainstream”. Notice 2014–21 explains the IRS Virtual Currency Guidance:
“Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender
Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency.
In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability”
Therefore, U.S. citizens are legally required to declare any transaction that brings them an inflow of either “real” or “virtual” money.
On the FREQUENTLY ASKED QUESTIONS explain the extent of the obligations that taxpayers have, among which are the duty to declare the amount of crypto received from:
Basically, all taxable income must be declared regardless of whether it was received either in FIAT or crypto.
The consequences of failing to report appropriately are serious: Should the IRS be able to identify a case, the offender may face criminal charges such as tax evasion and filing a false tax return. These charges, according to the IRS, can put people in serious trouble:
“Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.”
Featured Image: Depositphotos/© Thamkc