Filing Bitcoin and cryptocurrency taxes: what every US taxpayer needs to know
If you hold crypto, there’s a few things to keep in mind before doing taxes this year
Income tax. Not a particularly exciting topic, especially when it comes to paying them. But something we all need to deal with nevertheless. We are all (or at least should be) aware of what our personal tax returns entail. But are you fully aware of the implications holding crypto can have on your tax filing?
We recently talked to Clinton Donnelly, Founder of CryptoTaxAudit. Clinton has done hundreds of tax returns for US citizens, both domestic and expatriated, and is an expert when dealing with filing crypto and Bitcoin taxes. He is also an Enrolled Agent, which means he meets the requirements of the IRS to represent taxpayers. Clinton has seen it all, and there’s no situation too complicated.
In our interview with Clinton, we explored the ins and outs of crypto taxes for US citizens — it was an information-rich conversation. US taxpayers who hold crypto will learn what they need to report to the IRS, as well as the practical, concrete actions one can take to make sure they are complying with the Tax Code of the United States of America.
We also learn about a unique subscription service that is your insurance policy against an IRS tax audit (more on that later).
How to file a bulletproof crypto tax return
Over the years, taxes have become more and more complex, with this trend looking to continue. Adding crypto and Bitcoin tax doesn’t make things easier.
Here are four things every crypto holder can do to make sure their crypto tax return is bulletproof:
- Report all of your income — every transaction, including capital gains, mining income, staking income, etc.
- File the required anti-money laundering forms (FBAR and 8938) — failing to file these forms could result in massive fines!
- Claim all past losses — things like Ponzi schemes, scams, and lost or stolen wallets
- File a disclosure statement — essential as it deprives the auditor of the ability to seek certain penalties
What you risk if in the event of an audit
Clinton shared the content of an audit letter, and what the IRS could request. Here’s just a sample
- copies of all emails, screenprints, hard copy prints, transaction receipts provided by any third party such as an exchange or broker
- wired transfers
- direct deposit records
- a list of all virtual currency kiosks or ATMs used and their location with copies of the acknowledgment receipts
- a list of all virtual currencies received (i.e., airdrops, tipping, forks faucets) including the date, type, amount of currency received, date of sale
- and the list goes on and on…
Common mistakes when filing crypto taxes
There are two main mistakes people make when filing their crypto taxes. The first is not filing the required anti-money laundering forms — FBAR and 8938. These need to be filed for every foreign account you hold. Huobi, HitBTC, Bitstamp, these all qualify as needing to be reported. What happens if you fail to report? Well, nothing less than a $10,000 fine, per account, per year! It can’t be stressed enough how important it is to disclose these foreign accounts properly.
The second is failing to report like-kind exchanges, and everyone who holds crypto has done this. A like-kind exchange is a crypto-to-crypto exchange transaction. Think ShapeShift, Uniswap, IDEX… It’s not enough to report gains when you sell for USD — EVERYTHING needs to be reported.
One more thing to note is one should never under any circumstances: speak directly to an IRS agent. Anything you say can and will be used against you in your audit.
How to protect yourself against an IRS audit
Well, the first thing one can do is follow this valuable advice and report all crypto holding and account as accurately and thoroughly as they can.
The next thing is to suit up with a kevlar vest that will protect if you should ever receive an audit letter from the IRS.
CryptoTaxAudit is a subscription service an is your IRS audit insurance policy. When you subscribe to CryptoTaxAudit, Clinton Donnelly and his team of tax experts will represent you and talk with the agency on your behalf, calling their bluffs, dotting all the I’s and crossing all the T’s.
CryptoTaxAudit brings its full arsenal of crypto tax expertise. They prepare and submit all of the required documentation, and try to convince the IRS auditor (who have quotas and are humans after all) that they are wasting their time. In the event of a negative outcome, they can appeal this through several avenues, which are generally not known to the public.
For only $97 a year, you have complete peace of mind that if the IRS ever audits you, CryptoTaxAudit has your back. Also included in this is a free tax health check e-book and video mini-courses. That’s a great value if you hold crypto and live with the fear of being audited.
This post and its accompanying podcast interview are sponsored by CryptoTaxAudit.com
