More On: tax
Consumers still need to declare the sales and purchases of their 2021 crypto investments to the IRS in light of the new 2023 tax regulations that require crypto transactions over $10,000 to be recorded.
- Prior to the April 18th tax filing deadline, individuals still need to disclose their cryptocurrency holdings.
- This information could result in fines, penalties, or even jail time for those who don't share it.
- According on how long the asset is held, taxes will be different.
President Joe Biden introduced a new tax infrastructure bill last year that will require consumers to report transactions in digital assets or NFTs worth more than $10,000. The legislation will go into effect in 2023.
Despite the 2023 bill, consumers will still be required to report their crypto holdings before the April 18 tax deadline.
For those who still need to file, the IRS has issued a revised tax form that asks whether the individual owns cryptocurrency or not at the top of the first page.
"For the most part, for most taxpayers who have fairly simple taxes, e-file, and choose direct deposit, that process has been very smooth," said Mark Jaeger, VP of Tax Operations at TaxAct.
However, crypto holders face additional challenges in their perception of crypto in comparison to the IRS:
"It necessitates a conversation that clients were not anticipating," said Friedman LLP accountant Mike Greenwald. "They don't consider digital currencies in the same way that the IRS does."
Capital gains taxes and charitable contributions backed by the IRS
According to a recent CNBC report, any crypto earning capital gains through a profitable sale, swapping digital coins, or making a purchase for an NFT could all be considered "taxable events."
The difference between the purchase price (basis) and the value received by an individual when selling or exchanging is referred to as gain or loss. As a result, tax rates will differ depending on how long the individual has owned the digital assets. Depending on their taxable income, the individual may be eligible for long-term capital gain rates ranging from 0% to 15% on digital assets held for more than a year.
Those who make short-term gains, on the other hand, may face regular income tax rates of up to 37 percent. Because many crypto exchanges limit reporting, calculating the crypto tax bill may be more difficult.
Don't forget about charitable contributions. One of the most difficult issues for individuals who make charitable contributions, according to tax attorney Jonathan Shugart, is combining receipts.
"Most people do not report all of their charitable contributions during tax season because they cannot find all of their receipts." "If you do your charitable giving through your DAF, you get one receipt for all of your giving, regardless of how many charities you make grants to," he explained to Be[In]Crypto.
Shugart is also the founder of B Charitable, a 501(c)(3) tax-exempt public charity recognized by the IRS. As a DAF, the platform leverages the tax advantage of a charitable contribution and combines it with smart technology, crowdfunding campaigns, low fees, performance tracking, and tax-free investment growth – allowing every donor to benefit from the immediate tax benefits of an IRS-recognized charitable donation.
Shugart recommends thinking of DAFs as a "charitable savings account" when it comes to the tax timing of a charitable contribution.
"You put your money into your DAF, you get the tax benefit of making a charitable contribution at that time, and then you can either choose to grant that money out to your favorite charities right away, or you can let it grow and make grants when it's more convenient for you and the charities," he explained.
What if you don't report taxable activities?
The digital asset market will have surpassed $2 trillion by 2021, with bitcoin reaching nearly $69,000 in November and Ether reaching nearly $5,000 during the same period. Despite the fact that values fell in December, many investors saw a significant increase.
Individuals who fail to report taxable cryptocurrency activity may face interest, penalties, and even criminal prosecution. According to David Canedo, a CPA and tax specialist in Milkwaukee, consumers may also face tax fraud or evasion.
Canedo noted the difference in time periods, noting that purchasing Bitcoin in 2012 and then cashing out millions in 2021 is vastly different from small trades yielding a mere $100 profit – but that doesn't absolve individuals of disclosing all details. He emphasized that if you choose not to report those investments, "you're playing with fire," even with the IRS's three-year lookback period for any errors, noting that there is no statute of limitations for fraud.
The IRS will undoubtedly keep a close eye on cases involving a spouse or ex-business partner.
** Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of USA GAG nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.