IRS Sends Tax Compliance Notices to Cryptocurrency Holders
Attention, cryptocurrency enthusiasts! If you’re holding digital currencies like Bitcoin, Ethereum, or XRP, it’s time to peek into your mailbox. The Internal Revenue Service (IRS) is currently issuing notices to U.S. citizens who may have missed paying taxes on their cryptocurrency holdings or incorrectly reported them in their tax filings last year.
IRS Commissioner Chuck Rettig emphasizes the importance of these notices. He advises taxpayers to thoroughly review their past tax filings, amend any discrepancies, and settle any due taxes, interest, and penalties. This move is part of the IRS’s expanding focus on virtual currency, employing advanced data analytics to track compliance.
The IRS began sending these letters in late July, targeting about 10,000 taxpayers by the end of August. This initiative follows various IRS compliance efforts, including a notable case where Coinbase, a popular cryptocurrency trading platform, informed 13,000 customers of its compliance with a court order to share information on accounts valued at $20,000 or more from 2013 to 2015.
As per the IRS guidelines established in 2014, all virtual currencies are treated as property under U.S. tax law. This classification means that the sale or exchange of these digital tokens for other goods or services is a taxable event. Cryptocurrency traders must report any capital gains or losses from their transactions, much like stock market investors.
Short-term capital gains from cryptocurrency trades can be taxed up to 39% based on income brackets. However, if you hold onto your digital currency for more than a year before selling, you’re liable for a long-term capital gains tax, which ranges between 15% to 23.8%.
Lawmakers, like Rep. Warren Davidson from Ohio, are advocating for blockchain legislation, including modifications to the tax code concerning cryptocurrencies. This issue has gained further attention with the rise of new digital currencies like Facebook’s proposed Libra.
Don’t overlook these IRS notices! Ensuring tax compliance on your cryptocurrency investments is crucial for avoiding potential legal issues and keeping your digital currency dealings above board.
