Cryptocurrency has become a popular way to invest, but the tax side of virtual coins can be difficult to navigate. The IRS has oscillated over the years on its stance on cryptocurrency, making it confusing even for the most diligent investors.
In March of 2021, the IRS announced Operation Hidden Treasure in order to crack down on cryptocurrency reporting. If you’ve bought and/or sold crypto recently, it’s important to declare your crypto transactions on your tax forms, to avoid fraud and evasion charges.
Here’s what you should know.
Before we jump into it, if you know you owe IRS back taxes on your crypto gains, it’s important to reach out to a Qualified Tax Resolution Firm like ours that is skilled in negotiating back taxes with the IRS. We can help you file amended returns and get you back into compliance, while potentially negotiating with the IRS on your behalf. Schedule a free confidential consultation.
What Is Operation Hidden Treasure?
Operation Hidden Treasure is a joint effort by the IRS Civil Office of Fraud Enforcement and its Criminal Investigation Unit. It is designed to search for unreported income from cryptocurrency.
Operation Hidden Treasure has trained agents to examine the blockchain to find signs of tax evasion. Blockchain is the digital ledger that tracks your cryptocurrency mining and transactions. The IRS agents look for signs that are marked as signatures, which makes it easier to detect further fraudulent activity.
Crypto users have found ways to skirt reporting requirements by sending multiple transactions under a certain dollar amount or pouring their virtual currency into shell corporations, other countries, and cold storage. The IRS is also collaborating with European law enforcement agencies to combat international fraud.
How To Protect Your Assets
The IRS considers virtual currency to be property like gold, rather than money, and sales and exchanges of crypto are taxed accordingly. If your only crypto transaction this year was purchasing crypto, then that does not need to be reported, according to the IRS FAQ on their website. However, if you sold or you traded crypto for any goods or services, that does need to be reported. Other taxable crypto activity includes mining, and income from this and other crypto activities must also be reported on your tax return.
When you sell your crypto, keep track of its value when you purchased it, and its value when you sold it. While crypto and the IRS can both be murky subjects, your transparency is the key to protecting your financial assets from future tax audits.
To get ready for the upcoming tax season, it’s important to get your portfolio organized. If you have bought, sold, or traded crypto in the past year, contact a tax lawyer or a tax resolution firm like ours for advice on how to report your cryptocurrency transactions. The calculations can be tricky so we recommend using a third-party app to provide the reports necessary to file taxes properly.
Need Tax Relief?
If you do get in trouble with the IRS and they claim you owe $10,000 or more, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem.