People living in the U.S. are familiar with the Internal Revenue Service (IRS) and its functions. The 2019 tax season started on January 27. Consequently, taxpayers will have to provide information about their assets including cryptocurrencies. Nevertheless, a person should be careful when it comes to reporting crypto transactions.
The IRS treats virtual currency as property. It is similar to stocks or other investments.
Nevertheless, there are differences when it comes to reporting the crypto a person bought a crypto person received as a salary.
If a person bought the cryptocurrency and then sold this crypto money or exchanged this currency for something else etc. This person will be responsible for taxes related to the gain.
Cryptocurrencies a person received from an employer falls under a different category. In that case, this employee will pay the federal income tax as well as FICA tax and unemployment taxes.
Crypto mining is another story. A person involved in crypto mining should have to pay tax from the taxable income.
Cryptocurrencies and IRS
The question regarding the cryptocurrencies can be found on the first page of Schedule 1 of the individual income tax return. The Internal Revenue Service (IRS) wants to know whether the person received, sold, bought, or otherwise acquired any financial interest in any virtual currency.
Furthermore, when filling out this document, people should take into consideration that there are many ways to interact with cryptocurrencies.
In Summer 2019, the agency sent letters to more than 10,000 taxpayers with cryptocurrency transactions.
The purpose of this letter was to remind taxpayers to report and pay taxes they owed to the government. Some of them may have failed to provide information about their cryptocurrency transactions.
Crypto owners can face serious consequences including prison time as well as the fines up to $250,000.
Reporting cryptocurrencies is not an easy task, and taxpayers should pay attention to every detail to avoid any misunderstanding.