The world of finance has evolved considerably. Nowadays, cryptocurrencies have gained more popularity because they prove to be a great investment method.
Although people are relating much more to crypto-assets, they still lack knowledge about taxation in this regard. There is a recurring question: what happens if I don’t report crypto tax?
It’s okay to ask the question. The IRS has begun to notice the growth of the new financial method and will be concerned about closely analyzing people’s actions. Making a proper cryptocurrency tax return is critical.
Cryptocurrency tax, what happens when you don’t file?
Did you think that not reporting your crypto tax posed no problem? I suppose you might be wrong. Ignoring the issue could be considered tax evasion. As a consequence, you could pay a 20% understatement penalty.
It is important to comment on this; the agency could consider that you deliberately did not file the tax and increase the fine to 75%. We recommend you be attentive to the income tax returns to avoid issues or criminal charges.
Does the IRS have any anti-avoidance measures in place?
Yes. To avoid evasion and excuses, the agency has added a question to Form 1040, where you must specify any cryptographic activity carried out during the year. That way, no one will “forget” to file.
It is worth mentioning that the IRS considers cryptocurrency as a virtual currency that acts as a unit of account, deposit, or medium of exchange without representing any other foreign currency. Within the concept are most crypto assets, except non-fungible tokens or NFTs.
Know what to declare and what not to declare
Must report not all crypto activities. It depends on several factors. Below, we will introduce you to the declarations that you are required to make:
- Exchange of cryptocurrencies for other digital currencies
- Payment at any merchant. Payments made with crypto cards are also included.
- Sale of crypto for cash.
- Earning tokens by a fork.
- Cryptocurrency mining or staking.
- Cashing in cryptocurrencies.
On the other hand, some examples of situations that you should not include in your tax report will be presented:
- Donations in cryptocurrencies (you could declare them eligible for the itemized charitable deduction)
- Transfers by the exchange
- Cryptocurrency purchases
- Gifts in cryptocurrencies
What is the tax rate for crypto assets?
Knowing which must file crypto activities and which are not, it is important to know the established tax rate. The rate for filing is equal to that of capital gains.
Some time ago, the value was between 10% and 37% for short-term amounts. For long-term charges, it was between 0% and 20%.
Is it possible to calculate the rate of this tax?
Yes, it is possible. When the person has sold or exchanged crypto assets in the United States, they can calculate by considering the gains or losses obtained and the holding period of the purchase.
The holding time is calculated from the day after the purchase or transaction. The account continues until the day you sell it.
Report your cryptocurrencies easily
First, you should list all trades or transactions, including 1099 forms. Calculate all realized gains and losses. Fill out IRS Form 8949 set up for taxable events such as property.
Transfer everything from form 8949 to 1040 Schedule D. Fill in the lost income on 1040, and you’re done. The process is easier than it sounds; you have to pay attention and not forget any details.
Remember, any evasion will result in a big criminal problem, for which you will pay a larger amount. Therefore, it is essential to be aware of your legal duties with the state to avoid getting into trouble.
We recommend you ask for help if you do not know how to file your crypto taxes; that way, you will do the job properly, and nothing will happen. Finally, it will be better to be up-to-date before incurring in tax delinquencies.