When in Crypto, pay your Taxes.
I would like to start by saying that, when it comes to cryptocurrency (and any asset) and taxes, keeps things as honest and transparent as possible. The IRS (The Internal Revenue Service) has unlimited power and funds to find out anyone that may try to hide certain forms of income and they have been beefing up their operations to be able to scan and find any platform or individual who is not complying and paying their share.
The IRS views cryptocurrency as property, and so any capital acquired from the sale or transfer of said property must be reported as income, the same as the sale or transfer of any assets. Conversely, you are allowed to report losses if sales or transfer resulted in a capital loss.
Buying or holding crypto does NOT incur cryptocurrency taxes, you must sell the asset to create a taxable transaction.
You could owe cryptocurrency taxes if you have made any of these transactions:
The exchange of cryptocurrency for fiat currency
Trading cryptocurrency to virtual currency
Units of a crypto received as the result of a fork
Acquiring crypto int he form of payment for goods or services
Receiving crypto as a gift (but only if its above the exemption amount - $15k at the time of the gift)
The IRS has been sending thousands of letters to crypto companies and individuals who they suspect are not complying with the rules and regulations of the tax code. Believe me, you do not want to receive one of these letter.
We, unfortunately, did get one earlier this year and it was very stressful. Just opening an IRS envelope is a tense experience. Having to compile and send all your financial information and transactions can become time consuming and quite cumbersome. If you are running a very small operation, like myself, you basically have to stop everything you are doing and respond to every letter, email, and phone call that is required in order to clear the situation as fast as possible. Luckily (so far so good), we were not liable for any wrongdoing nor were we fined. But the time it took us to comply to their demands and the stress that this brought to us was a hefty enough punishment and a great learning experience.
To file properly, check IRS form 8949 , you will also need to file a schedule D, but Im not a tax expert, nor an accountant, so please ask your accountant and get informed. By any means, we recommend you pay your taxes properly and in a timely manner to avoid any issues.
“In fiscal year 2019, we had about $700k worth of crypto seizures. In 2020, it went up to $137 million, so far the IRS has seized $1.2 billion worth of cryptocurrency this fiscal year. (CNBC).
Needless to say, the IRS and the US Government (any government of any nation really) are very up to date with the gains that crypto investors have enjoyed and it is best to file our income properly. Also, the crypto space is getting deeper and deeper as we speak, which means more keeping track of. We now have many source of income available at our disposal in the crypto space; DeFi protocols that pay interest in crypto (among many other sources of income in the DeFi space), Trading of NFTs, Trading of Tokens, Yield Farming, Smart contracts, various forms of mining, AirDrops, ICOs, and the list goes on… Its only natural to think that any income proceeds from any of these operations will be taxable. We are definitely unsure how every income that emanates from our crypto investments will be taxed, specially as transactions get more complex and intricate, but we are sure that the IRS is working on strategies to make sure everyone pays their taxes.
There are a number Crypto Tax SaaS that can assist you and your company get finances and tax numbers organized, and many crypto platforms will send you a summary of your yearly transactions for tax purposes. I personally have not used any of these softwares, but I will list a few here for you to check and learn more about them:
I hope this letter was useful, By any means pay your taxes, but hey, if you #hodl, you wont have to pay anything, until you sell..