Have you invested in Cryptocurrency? Do you understand the IRS reporting requirements? Did you know that the IRS is actively pursuing information on your cryptocurrency holdings directly from cryptocurrency exchanges? This tax law firm has developed strategies that have allowed us to successfully reduce cryptocurrency related gains while remaining in full compliance with IRS requirements.
How Does The IRS View Cryptocurrency?
The virtual currency market has appreciated significantly, causing investors to buy virtual currency for investment purposes. It operates like real coin or paper money of any country in the world, but it does not have the legal tender status in any jurisdiction. Bitcoin is the most popular example of a convertible virtual currency that can be digitally traded and used to purchase property or exchanged into US dollars, Euros, or other currency.
Other virtual currencies include Etherium, Litecoin, Ripple, Darkcoin, Altcoin, MazaCoin, Peercoin and many others. The IRS has seen numerous abuses lately, similar to taxpayers dealing with cash. The IRS is requesting information from coinbase.com and other virtual currency exchange platforms about its customers' purchase and sale of Bitcoin during the most recent three year period. The IRS is specifically requesting detailed information from the taxpayers about purchases and sales of property using the virtual currencies. This creates a complex system of accounting whereby the fair market value of the virtual currency is relevant in determining gain or loss. This tax law firm will perform an analysis to reduce the gain to the greatest extent possible based on the fair market value of the virtual currencies when it was purchased as well as when the property was acquired.
Smart Strategies For Reporting Cryptocurrency Assets To The IRS
We have been very successful in using the "property obtained or disposed of" argument in determining its value. That analysis can significantly reduce your gain. This tax law firm will determine the character of the gain or loss as either a capital asset or as an ordinary asset, as that will have significant tax benefits in the two transactions. First, the acquisition or disposition of the virtual currency itself and second, the acquisition or disposition of the property or services. We will also determine whether self-employment taxes are due based upon you receiving virtual currency in your business.
The IRS is also investigating taxpayers' compliance with information reporting requirements such as third party settlement organizations and backup withholding. We are very familiar with these reporting requirements and the penalties associated with these failure to comply. Please call me with any questions or if you've received notification from coinbase.com that the IRS is requesting your information and we will discuss your tax options in detail.
IRS Letter 6174: Reporting Virtual Currency Transaction
If you recently received a Reporting Virtual Currency Transaction letter 6174 from the IRS, they have received information from Bitcoin, Coinbase or other virtual currency exchanges or providers that you have purchased and sold cryptocurrency or non-crypto virtual currency.
The IRS is asking in letter 6174 that you amend or file your delinquent individual or business income tax returns reporting your gains or losses or be subject to civil penalties, or possibly criminal enforcement activity.
The Tax Cuts and Jobs Act of 2017 Impact on Cryptocurrency
After the Tax Cuts & Jobs Act of 2017, “like-kind” exchanges are limited to real property, not tangible personal property like cryptocurrency. Before January, 2017, the issue is less clear. This taxlawfirm will analyze your own situation to determine whether you can claim “like-kind” exchange treatment when you exchange one cryptocurrency for another, possibly creating a non-taxable event, such as a tax-free exchange.
At this Tax Law Firm we are very familiar with the reporting requirements of cryptocurrency and non-crypto virtual currency.
What is the IRS Looking For When They Use Form 6174?
Most people use cryptocurrency transactions for truly legitimate for-profit motives. However, the IRS is attempting to locate people that either: do not report their transactions, or those individuals who are using cryptocurrency or non-crypto virtual currency for an illegal purpose. Don’t be one of those people the IRS audits or investigates.
Call this tax law firm at (858) 481-4844 so that we can advocate your rights before the IRS, so you don’t get audited or investigated.
The IRS Treats Cryptocurrency as Property, not as Currency
A sale or exchange of cryptocurrency is treated by the IRS as property, not as currency. Therefore, ordinary/capital gain or loss rules apply. Capital assets include stocks, bonds and property held for investment. Capital gains are subject to a significantly lower capital gains tax rate, however, capital loss deductions are limited to $3,000 per year.
If the cryptocurrency is held for sale to customers in the ordinary course of a trade or business, it’s inventory, which is an ordinary asset, subject to ordinary gain and loss rules. If generated from a trade or business such as mining, the gain may also be subject to self-employment tax. Ordinary gains are taxed at your full ordinary tax rate, but ordinary losses are fully deductible. What you “really want” is a long-term capital gain, or an ordinary loss. This Tax Law Firm will plan the best tax structure available in your situation.
Tax Implications of Cryptocurrency
Cryptocurrency that is exchanged for other cryptocurrency is a taxable event, according to the IRS. It is not considered an “exchange” of currency because digital assets are not a currency, they are property. Section 1031 “like-kind” exchange rules are not available for cryptocurrency after January, 2017 as the Tax Cuts & Jobs Act limited “like-kind” exchanges to real property. If cryptocurrency is generated by mining, the value of mined cryptocurrency is included in income as of the date of receipt. If mining is carried on in a trade or business then other business expenses may be deducted, as well as depreciation of mining equipment.
If this may apply to your situation. Please call me at (858) 481-4844 for a FREE Consultation that is protected under Attorney-Client Priviledge, so that we can advocate your rights before the IRS.
How Does The IRS Treat A Cryptocurrency Fork
A digital fork occurs when software underlying the digital asset is changed by developers and miners. They alter the rules of how the digital asset is created. This will result in a “fork” where the new version of the digital assets using new rules is different than the old cryptocurrency which still exists.
This can even result in a “hard fork” where the new and the old cryptocurrency is not compatible, creating a new digital asset altogether. The IRS is given no explicit guidance on the effect of forks, therefore, this Tax Law Firm will discuss the options of treating it as ordinary income or loss, capital gain income or loss under the “Treasure Trove” doctrine, or dividing the basis between the old digital asset and the new ones.
Will the IRS Accept “like-kind” Exchanges of Cryptocurrency?
Congress is currently considering H. R. 2144, the Token Taxonomy Act of 2019 which allows Section 1031 “like-Kind” exchange of one cryptocurrency, for another cryptocurrency, as well as disallows the taxation of all gains under $600 from taxation under the “de minimis” rule. If enacted it would be retroactively effective beginning January 1, 2017.
Please call this Tax Law Firm at (858) 481-4844 to discuss your crypto issues. I look forward to hearing from you.
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