If you are an owner of any type of virtual currency, then you need to revisit the tax returns you filed in the 2019 tax season, especially, if you have neglected or improperly filed taxes on your cryptocurrency. If so, you would be receiving a notification mail from the IRS urging you to amend and update your tax returns, or you could face criminal prosecution.
The IRS is sending out mails to 10,000 plus taxpayers who failed to report or improperly reported their digital assets while filing their 2018 tax returns. Digital assets may include bitcoin, ethereum, XRP, or any other kinds of cryptocurrencies.
It is absolutely necessary for you to learn all about this notification and be aware of your tax liabilities as far as digital currency is concerned to ensure that you do not run foul of IRS tax regulations. The last thing you need is facing criminal prosecution for regulations you were not aware of.
Status of Digital Currency under U.S. Tax Laws
All types of digital currencies are considered as property under the U.S. Tax Laws. This means your digital currency is treated the same as any real estate you might own, making taxable the sale or exchange of cryptocurrency tokens for purchasing goods.
Also, just like shareholders, digital currency holders are liable to report any capital gain or loss from the trade of their digital currency.
Rate of interest on the trade of Digital Currency
Since most of the trade counts as a short-term capital gain, the interest rate can be as high as 39 percent. However, if you hold on to your bitcoin more than a year and then trade it, then this will be treated as a long-term capital gain and taxed at a significantly lower rate, which could be anywhere between 15 to 23.8 percent.
What should you do?
If you have received an IRS mail saying that you have defaulted on reporting your digital assets, then you ought to take it very seriously. The IRS has announced that some of the taxpayers might even face criminal prosecution in this matter.
Review your last year’s returns: Be proactive and review your previous year’s returns to ensure you have paid the taxes due on your cryptocurrency.
File for amended returns: If you discover some error while reviewing your last year’s tax returns, then ensure to file for amended returns as soon as possible. You can visit the IRS website or contact your tax prepper to assist you in filing amended returns.
Pay over-due taxes, penalties, or interest on digital assets: If you have any overdue amount on your digital assets, then you ought to clear them as soon as possible.
The crux of the matter is every individual needs to be aware of the tax regulations related to digital currency. Many individuals try to find a loophole and evade taxes on their digital currencies. But the IRS is well-versed in tracking individuals who have digital currency and those who have defaulted on their taxes, willingly or not.
So, if you are a digital currency holder, this should be an eye-opener to meet with all the federal tax requirements diligently and timely. Know all about the digital currency; it’s value, your rights, and how it is taxed under the U.S. tax laws by approaching your MyTaxFiler expert.