Cryptocurrency has become an increasingly popular form of investment in recent years. As a result, many people have started investing in digital currencies like Bitcoin, Ethereum, and Litecoin. However, not everyone who invests in cryptocurrency is aware of the tax implications. In this article, we will discuss what happens if you don’t report cryptocurrency on taxes.
Cryptocurrency and Taxes
According to the Internal Revenue Service (IRS), cryptocurrency is treated as property for tax purposes. This means that any gains or losses resulting from the sale or exchange of cryptocurrency are subject to capital gains tax. The tax rate will depend on the length of time you held the asset before selling it, and your income level.
Failure to Report Cryptocurrency on Taxes
If you fail to report cryptocurrency on your taxes, you could face serious consequences. The IRS has made it clear that they view failure to report cryptocurrency as tax fraud. This means that you could be subject to fines, penalties, and even criminal charges.
If the IRS determines that you have failed to report your cryptocurrency gains, they may initiate an audit or investigation. During this process, they may request documentation to support your tax returns. If they discover that you failed to report your cryptocurrency gains, you could be subject to back taxes, interest, and penalties.
Penalties for Failure to Report Cryptocurrency on Taxes
The penalties for failing to report cryptocurrency on taxes can be significant. The exact amount will depend on a variety of factors, including the amount of taxes owed, the length of time you failed to report, and whether or not you intentionally tried to evade taxes.
If you fail to report your cryptocurrency gains, you could face penalties of up to 25% of the taxes owed. In addition, you may be subject to interest charges, which can add up quickly over time. If the IRS determines that you intentionally tried to evade taxes, you could face even more severe penalties, including fines and even criminal charges.
Avoiding Problems with Cryptocurrency and Taxes
To avoid problems with cryptocurrency and taxes, it is important to keep accurate records of all your cryptocurrency transactions. This includes the date of purchase, the amount purchased, and the purchase price. You should also keep track of any fees or commissions paid during the transaction.
It is also important to report all cryptocurrency gains on your tax return. If you are unsure of how to report your cryptocurrency gains, it is recommended that you seek the advice of a tax professional.
Conclusion
In conclusion, failure to report cryptocurrency on taxes can result in serious consequences. It is important to keep accurate records of all your cryptocurrency transactions and report all gains on your tax return. Failure to do so could result in fines, penalties, and even criminal charges. As always, it is recommended that you seek the advice of a tax professional if you are unsure of how to properly report your cryptocurrency gains.