Contrary to its portrayed draconian stance on crypto taxes, the US Internal Revenue Service is playing fair. Exercising transparency in reporting numbers is the key, and may save crypto traders thousands in tax bills.
IRS Appreciates Detailed Crypto Transaction and Trading History
A detailed history of crypto transactions and sales may significantly reduce the outstanding tax bill and clear users from unwanted scrutiny reported Bloomberg.
As a routine, the IRS sends out letters to warn taxpayers to present undisclosed earnings. However, US traders need not worry. A detailed history of crypto transactions, as well as trades and logged gains or losses, could make all the difference. The IRS recently put out a rather complex set of rules for digital assets, which confused quite some crypto owners. But it turns out that, in most cases, a taxable event occurs once the coins are sold.
In the summer, the IRS worried crypto social media, by sending out 10,000 Letter 6173s. But with some support, owners of digital assets were able to save thousands of dollars in taxes.
Assistance with Building Tax Report Offered by CoinTracker
CoinTracker, a startup specializing in blockchain history and transactions, has helped with the matter.
“I personally worked with a user where the IRS was saying that they owed thousands of dollars on a CP2000 notice,” said Chandan Lodha, co-founder of CoinTracker. “And then after they presented their full transaction history, the user actually ended up with a refund.”
Lodha, however, commented that the IRS did not glean its information from blockchains. Instead, it relied on third-party reporting through Form 1099-K. This meant that crypto assets were liquidated and somewhere, a fiat transaction was logged and reported. So far, no letters have been received from the IRS based on hard fork activity, except crypto transactional activities concerning exchange or brokerage sales.
Traders with a long and convoluted history of crypto trading could offer a summary form, suggested Lodha.
“It can’t hurt to provide as much detail as possible, but for taxpayers with extremely voluminous histories of crypto trades, the IRS can be reasonable in my experience in accepting summary information plus corroboration, he said in an email,” Lodha said.
CoinTracker also discovered that the IRS is not extremely harsh if a person makes the best attempt to report on their crypto-related activity. However, failing to report revenues recognized by third parties is treated as a transgression.
BTC is on track to log a significant paper gain in 2019, rising more than 100% net even with corrections. However, a taxable event may be quite different for someone who sold at peak prices versus more depressed positions.
What do you think about the IRS stance on crypto gains and taxation? Share your thoughts in the comments section below!
Image via Shutterstock