It’s been said that nothing in this world is certain except death and taxes. If you’re reading this, thankfully you’re among us in the land of the living. Unfortunately, that means still having to pay taxes… on everything, including your cryptocurrency holdings. The United States Internal Revenue Service (IRS) has begun to remind holders through mass mailings of IRS letters 6173, 6174 and 6174-A that their tokens are subject to taxation and it’s time to pay dues.
The news shouldn’t come as a shock, as the letters are the culmination of an initiative sparked back in 2014 when the IRS declared Bitcoin an asset. Whether you trade, mine, or are paid in crypto by an employer, all of those earnings need to be reported to the bureau. It took a few years, but the IRS now has enough information on holders and a better understanding of the cryptosphere to actively pursue individuals that have not filed their crypto returns. The letters aim to help taxpayers understand their tax and filing obligations and how to rectify any oversights.
But the letters are seen as a kick in the face to holders, as the entire premise around cryptocurrency when it came on the scene in 2011 was to have a decentralized and anonymous currency that could be traded peer-to-peer without the intervention of government and banking institutions — giving us freedom and autonomy over our finances.
Due to cryptos’ inherent anarchical philosophy and anonymity, most holders operated under the assumption that they could evade taxes. While this notion held true for wallet users in the beginning, a lot has changed in the past eight years as far as compliance and regulation are concerned. Regulation is now applied to exchanges, and transactions can be tracked on the blockchain.
Of the letters, 6174 & 6174-A are considered no-action letters, meaning you do not have to respond if you have met all the crypto tax filing obligations outlined in the letter. These letters also provide recommendations to file amended or delinquent returns if you think you did not appropriately file in years past. However, it is still recommended to follow up on them.
Letter 6173, however, requires your action. If you do not respond in an adequate time frame, your tax account will be examined by the IRS, potentially causing you a huge headache. For detailed information on each letter, check out our guide.
So, while it goes against the token mindset, it is advised to take the path of least resistance, comply, and file a return for your holdings. But how do crypto taxes work? How does one calculate tax liability across multiple wallets, exchanges, and cost bases?
There are several firms and systems on the market to help aggregate and estimate what you owe on taxes, but getting an accurate picture is extremely difficult, and many services fall short leaving holders subject to audits and hefty fines. Because of complex unregulated ecosystems and multiple players, movement between internal wallets on exchanges might not have thorough documentation, and varying factors can affect the information provided on the lifecycle of your tokens.
That’s where Bittax comes in. Thanks to our proprietary algorithms and innovative software, we can accurately extract all the information needed to establish the real cost basis through trading. We arm you with the tools to make informed and responsible decisions with your crypto and provide you with thorough tax planning.
With our beta, we allow users to plan their taxes, saving them time and money — effectively negating the risk of audits.
Our calculator allows you to enter all your wallet addresses and evaluates what Bitcoin you should sell in order to receive the best tax optimization, taking into consideration the long and short term benefits. Our beta is free to sign up for and risk-free. We don’t ask for any personal or identifying information because we know how important privacy is and respect yours in the highest regard.
So when Uncle Sam comes knocking on your door, rest assured we’ve got your back.
