Biggest IRS Crypto Tax Guidance and What it Means for Crypto Traders

The IRS’s recent release of crypto tax guidance heralds major changes for all US taxpayers. Make sure to learn what it means for you as a crypto trader.

In early October, the IRS made its biggest release of crypto tax guidance in the past five years. And it heralds a massive change in how crypto traders report their cryptocurrency income.

The New Crypto Tax Guidance

The IRS has published an early release of the 2019 version of Schedule 1 of Form 1040. The schedule now starts with the following new question,

"At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

A yes or no answer is required. (The IRS defines cryptocurrencies as virtual currencies.)

This question requires all taxpayers to admit if they dabbled with cryptos during 2019.

Once a taxpayer checks this box, they are added to the list of known crypto traders for whom the IRS intends extra scrutiny.

Checking Yes to Crypto Tax

crypto tax

Photo by Julian Lozano on Unsplash.

So let’s say you check yes in 2019. What are the implications?

First, if you sold or exchanged cryptos in 2019, you must list your capital gains from those transactions. When listing a coin sold, you have to state the purchase date. If that date happens to be in a prior year, it begs the question, “did you accurately report your cryptos in that year?”.

Smart traders would go back and amend those prior year returns before the IRS finds out.

Checking No to Crypto Tax

crypto tax

Photo by Gemma Evans on Unsplash.

What are the implications of a crypto trader checking no?

When you sign a tax return, you are signing a statement that says under penalty of perjury, this return is true, correct and complete. Wrongly checking no would be a felony subject to fines or imprisonment.

This new Schedule 1 will cause all U.S. crypto traders to come out of the closet or permanently hide.

Need Crypto Tax Guidance?

To best learn how we can help you, let’s find out where your crypto taxes are at. Take our free Crypto Tax Health Check (download below) and visit our store to benefit from my other ebooks. 

Do you already know that you need our crypto tax services? Check out our Full-Service Crypto Tax Package or our do-it-yourself Crypto Tax Fixer Package.

Featured image by André François McKenzie on Unsplash.

Get Our Newsletter

Get my bi-weekly newsletter with helpful tax resources and keep us at hand in case you ever need our help.
You’ll also receive a special discount code for signing up!

Latest Release of IRS Crypto Tax Information – Interview with Brad Kimes on XRP

We’ve just had the biggest release of IRS crypto tax information in the past five years. Here’s what to know and how to be prepared as a crypto trader.

This week has been the biggest release of IRS crypto tax information in the past five years. What is going on and what does this mean for you as a crypto trader?

I discuss this big news, and answer important questions it brings up, in my latest interview with Brad Kimes of XRP. If you haven’t already, watch the interview now. 

What Comes Next?

Over the next month, I’ll be writing more in-depth about this latest IRS crypto tax information and what you can do to be prepared as a crypto trader. 

In the meantime, subscribe to my newsletter to be notified of that and other important information regarding US crypto taxes. 

And get a 50% discount code for signing up. 

Beyond IRS Crypto Tax Information

Dealing with crypto taxes requires more than a regular tax accountant. It requires legal expertise about the US tax regulations. That’s why I have a law degree specializing in the international laws of financial regulation including taxation. I’m also an Enrolled Agent

With this background, I’ve written several books that can help you with your crypto taxes.

It’s Never Too Early for Tax Planning

Good tax planning is a year-round activity that requires knowing your options and keeping good records. Easily stay on top of it with these great tips.

Benjamin Franklin once said “to fail to plan is to plan to fail.” This adage certainly applies to tax planning.

Although the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated many deductions outright, there are exceptions. Certain deductions still exist but are being phased out, whereas others will expire after a set time. This means good tax planning remains an important aspect of good financial health.

Following are six steps you can take right now to prepare for your future taxes:

1. Adjust Withholdings

Determine whether you are someone who takes out more taxes every pay period so that you get a tax return, or whether you want the benefit of having the cash on hand right now. Adjust your withholding accordingly by filing a new Form W-4.

2. Organize Receipts

Start organizing your receipts now so you don’t accidently miss a deductible expense or a tax credit. Check the standard deduction for your situation, and consider whether you might need to itemize.

Having your receipts ready eases the tax preparation process. You should have the following categories of receipts and other documents handy:

  • Last year’s federal, state and local tax returns
  • Receipts/statements/cancelled checks for medical and drug costs, health savings account contributions, charitable contributions, contributions to retirement plans
  • Business travel and meal expenses (including a mileage log)
  • Childcare expenses
  • Receipts related to your home, including mortgage and line-of-credit expenses, repair and renovation expenses, real estate and school taxes (not all of these will be deductible, but they may help reduce your basis when you sell your home)
  • Any receipts related to a home purchase or sale
  • Receipts related to life events like marriages, divorces, births and deaths
tax planning

3. Review Your Investment Strategy

Short-term investments (those held 12 months or less) don’t get special treatment, but long-term investments (those held longer than one year) are typically taxed less.

4. Review Your Charitable Contribution Strategy

If you make large contributions, it may make sense to alternate the years in which you make the contribution so you can exceed the threshold for the standard deduction.

5. Evaluate Tax Credits

Consider whether you’re eligible for any tax credits so you can take full advantage of them. Tax credits are important because they are dollar-for-dollar reductions in the amount of taxes you owe. These credits may be refundable or nonrefundable. Refundable tax credits can reduce your tax liability below zero, while a nonrefundable credit cannot.

6. Review Your Estate Plan

No one knows what is going to happen in the future. TCJA changed many deductions related to gifts and estates; take this time to review the changes and make sure your estate plan reflects your wishes and is current. Keep in mind that some of the provisions now in effect are due to sunset in 2025.

If you need help preparing for your future taxes, schedule a consultation with us today.

©2019

Photo by Helloquence on Unsplash

Not Filing Anti-Money Laundering Forms Could Cost You $10,000 or More

Filing anti-money laundering forms may be applicable to you. To not be penalized, learn more about what forms are involved and how to file them.

Without realizing it, each U.S. taxpayer provides anti-money laundering information to the IRS each year.

How?

At the bottom of Schedule B, there is a question asking if you have a financial interest in or signature authority over a financial account in a foreign country – yes or no. This question explores whether the taxpayer has an anti-money laundering obligation.

Even an account at a non-U.S. crypto exchange is considered a foreign financial account that must be reported.

READ MORE: Do I Need My Crypto Taxes Fixed?

Reporting Your Anti-Money Laundering Forms

Foreign financial accounts are reported on two forms. The first is called FinCEN Form 114 (nicknamed FBAR). The second is IRS Form 8938. Also reported on Form 8938 are all financial transactions like buying or selling/exchanging cryptos.

TAX TIP: I usually aggregate the totals of all transactions instead of itemizing them.

The FBAR form is technically not an IRS form, but the IRS is responsible for administering the collection of the form. Click here for the latest version of the FBAR form and the system for filing and submitting it.

Click here to access Form 8938 if it is not supported by your tax software. This form is filed with the 1040 tax return form.

anti-money laundering

Photo by Kelly Sikkema on Unsplash

Both of these forms are usually due on tax day, April 15th, or on October 15th if you properly filed an extension. Failure to file these forms on time is an automatic $10,000 penalty per form.

The only way to avoid this penalty if you haven’t filed these for past tax years is to file using tax amnesty.

Learn about how to do the tax amnesty process with our Crypto Tax Fixer Package.

Not Sure If Your Taxes Need Fixed?

Take our FREE take health check now. 

Featured Image Photo by Kelly Sikkema on Unsplash

9 Important Things to Know About Blockchain

Blockchain is to bitcoin what the Internet is to e-mail. Even if you’re not ready to use digital currency, you can benefit from understanding this new technology.

Technology is changing at such a fast pace that it can be difficult to keep track of everything in the news. Some of those technologies will survive, others will be reconfigured and still others will fail.

Some Background On Blockchain

Blockchain is one technology that will continue to thrive. It has been around since 2008, when it was first introduced along with bitcoin, a digital currency (aka a cryptocurrency).

Despite some glitches along the way, both blockchain and bitcoin have flourished since they were first introduced, and both have become relevant to many industries, including health care, insurance and transportation.

Unlike Bitcoin, however, which has been joined by a number of other alternative currencies, blockchain remains the main underpinning of all of them as well as of other applications.

How Blockchain Works

At a time in which data management and security has become a primary concern of all business sectors, blockchain has emerged as a safe way to digitally record and memorialize financial transactions without needing centralized third-party authentication.

Bitcoin still is the leading digital currency. Like the paper money and coins, bitcoin’s value stems from the fact that it can be used to buy goods and services. Bitcoin (or any other digital currency) and blockchain work together. Here are nine things you need to know:

  1. A digital file called a “ledger” is used to keep track of your bitcoin.
  2. Your ledger is distributed across a network of private computers (called “nodes”).
  3. Every time you initiate a transaction, every node in the network is notified so it can update the balance in your ledger using your public key.
  4. Blockchain does not keep track of your balance; it only tracks the transactions you make.
  5. Your bitcoins are kept in a “wallet” that is encrypted with a specific public key as well as an encrypted private key. Only you can use your private key to encrypt and decrypt your transactions.
  6. You can have as many wallets as you wish. Each has its own private and public keys.
  7. Every time you use your private key you generate a digital signature, and blockchain uses that signature to verify your transaction. This signature changes every time you initiate or change a transaction. This makes it impossible to change a recorded transaction.
  8. Transactions are grouped into blocks. Each block contains a set number of transactions and a link to the previous block.
  9. The blocks are organized in a time-related chain and connected through cryptography that relies on special mathematical functions and codes. Every transaction in each unique block is considered to have happened at the same time.

Benefits Of Blockchain

Blockchain has many benefits, including the following:

  • Value (bitcoin or another cryptocurrency) can be transferred within a few minutes and secure within a few hours.
  • Transactions are transparent because anyone can verify any transaction at any time by following its trail along the blockchain.
  • Transactions are private: only you have the private key to your wallet.

Also consider the following:

  • No centralized entity oversees the transactions, so there is no help desk to call if you need help. You alone control your account. Transactions are not secured by an entity like the Federal Deposit Insurance Corporation. If something goes wrong and your digital currency is somehow diverted from your account, you have no recourse.
  • The value of bitcoin and other digital currencies is volatile. Their value isn’t controlled by an entity like the Federal Reserve or the World Bank, which means their value is not as stable as traditional currency.

The growth and evolution of blockchain technology over the past 11 years or so is impressive. To discuss how it may continue to evolve, contact us today.

©2019

Featured Image by Hitesh Choudhary on Unsplash

Do I Need My Crypto Taxes Fixed?

Wondering if you need your crypto taxes fixed? Take our free, downloadable crypto tax health check so you know if your crypto taxes need surgery or not.

Do I need my crypto taxes fixed? Should I fix my tax return to report my cryptos better? Those are the questions that many traders are asking now that the IRS compliance campaign has begun sending letters to traders. For many traders, it was the first time they ever did any investing. Reporting these investments on their taxes was a new awakening for them.

So it is time to do a health check. It makes sense. Every year you go to a doctor to have your body signs checked for hidden problems. We can do the same thing with your tax return.

(more…)

3 Proven Ways Crypto Traders can Avoid IRS Problems and Slash Their Taxes

Despite what you may have been hearing, or experiencing, crypto traders can avoid IRS problems. Ideally, you also want to slash your taxes. And you want to achieve both for good reasons. The good news is, it’s possible with these three proven ways.

Continue reading "3 Proven Ways Crypto Traders can Avoid IRS Problems and Slash Their Taxes"