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The tax authorities have a new tax form and want to know about cryptocurrency



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The tax season is still months away, but the IRS would like to know about your cryptocurrency holdings.

The IRS just released a new Plan 1 for the 2019 tax season, spelling out the details of over-the-line deductions, including tax relief for student loan interest rates and health savings account grants.

Eager taxpayers will notice that the tax authorities cast an additional question on the form: "At any time during 201

9, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?"

This is the agency's latest effort to gather additional information on taxpayers' virtual currency holdings.

See below for form

"The biggest thing is that the IRS asks this for a reason, and my question is how much did you increase your audit risk by checking" Yes "in response?" Asked Jeffrey Levine, CPA and director of financial planning at BluePrint Wealth Alliance in Garden City, New York.

The inquiry itself is a vague one, experts said.

"As a taxpayer myself, I find this question very frustrating because it's not clear," said Sarah-Jane Morin, partner at Morgan Lewis in San Francisco.

Moving your own virtual currency from one crypto wallet to another, for example, can be considered "sending," she said [19659003] "The most conservative approach a taxpayer can take is to consider all the interactions you have virtual currency, and if there is any way this could fall under this very broad list of what you could have engaged in during 2019, "Morin said.

The IRS has actually signaled that it would look into the cryptocurrency.

Back in July, the agency announced it was sending letters to more than 10,000 taxpayers with virtual currency transactions who may have failed to report income and pay taxes owed.

Here is the tax basis for cryptocurrency.

Varying Tax Treaties

The headquarters of the Internal Revenue Service (IRS) in Washington, D.C.

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If you sold cryptocurrency, you must report the transaction. If you are wound up with a capital gain, you must pay the correct tax.

Cryptocurrency you receive from an employer is subject to withholding tax on federal income, FICA tax and federal unemployment taxes, just like wages. These should be reported on Form W-2, the IRS said.

Meanwhile, independent entrepreneurs who are paid in virtual currency have to pay taxes for self-employment.

For those who are mining cryptocurrency, the fair market value of it as of the date of receipt is included in your gross income, according to IRS guidance.

Failure to report these transactions properly can be costly: You may be audited and held liable for fines and interest.

In the most extreme cases, you can face jail and a fine of up to $ 250,000.

"A taxpayer who invests in virtual currency should have a system to track the purchase and sale price of the assets," he said April Walker, head of tax practice and ethics at the American Institute of CPAs.

"In fiscal matters, the virtual currency is treated as property, which looks like a security," she said. "Therefore, taxpayers should keep cost records similar to how records are kept for shares and securities, although there will be no monthly statements."

Based

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Gathering the data for calculating these taxes is easier said than done.

It is because you calculate what you owe, you need the cost basis – that is, the original value of the asset for tax purposes.

"Back in 2018, reporting requirements were still catching up," said Dan Herron, CPA at Elemental Wealth Advisors in San Luis Obispo, California.

"We have to go through 50 pages of transactions, throw it in a spreadsheet and find out what you bought this for, what did you sell it for," he said.

If you need to hunt down the cost basis for some long-run stocks and the brokerage firm doesn't have that information, you can dig up historical prices and dividend payouts to find out.

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Tips to Get Your Medicare Coverage Right [19659003] The Process is less straightforward with cryptocurrency, as any investor can trade on multiple platforms – and the exchange rate can vary across platforms. The onus is on the taxpayer to keep track of the cost basis.

Some vendors, such as Lumina and Bitcoin.Tax, have actually stepped up to collect crypto transactions and help calculate the cost basis.

"If you are a bitcoin merchant or other cryptocurrency trader, you will invest in some crypto-specific accounting software that allows you to track transactions," Levine said.

"Otherwise it will be a disaster to find out what basis you want," he said.


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