NATIONALLY RECOGNIZED FEDERAL LAWYERS
Last Updated on: 29th September 2023, 08:46 am
The Most Common Cryptocurrency Transactions the IRS Is Targeting Now
The IRS is cracking down on cryptocurrency transactions like never before. With crypto’s rise in popularity, more and more people are trading digital assets and the IRS wants its cut. But which transactions are they targeting the most? I did some digging into the latest IRS crypto enforcement actions and identified the most common targets. Keep reading to learn more!
Failing to Report Crypto Income
One of the biggest issues the IRS has with crypto is people simply not reporting income from trading or other crypto activities. Since 2014 the IRS has considered crypto to be property, meaning capital gains and losses need to be reported. But between 2013-2015 less than 1000 taxpayers reported any crypto income! The IRS started cracking down and sent letters requesting past returns be amended.
Now the IRS receives 1099 forms from major exchanges like Coinbase that show how much crypto users bought and sold. So even if you don’t report, they can see the activity. I’d recommend reporting all crypto income even if you don’t get a 1099 just to be safe. The penalties for not reporting income can be huge!
Not Reporting Crypto Transactions
Along with leaving off crypto income entirely, the IRS doesn’t like it when people don’t report specific transactions. In 2016 they went after Coinbase and asked for records on about 500,000 users. This let them see which accounts had unreported transactions that should have been taxed.
The IRS also uses contractors like Chainalysis to analyze the public blockchain and match wallets to known owners. So those “anonymous” crypto transactions may not be so anonymous to the IRS! Make sure to keep records of every transaction so you can report it properly.
No Cost Basis for Trades
When you sell or trade crypto, you need to calculate your capital gain or loss based on the cost basis – how much you originally paid for the crypto. But the IRS is finding many people are not reporting their cost basis, making it impossible to verify the gain or loss is correct.
Always keep records of when you purchased crypto and how much you paid. Exchanges like Coinbase will show your cost basis for anything bought there. And make sure to report the costs basis and sale price/value for every trade or transaction.
Using Crypto to Hide Assets Offshore
The IRS is very concerned about people using crypto to illegally move money offshore and hide assets. By shifting money to crypto wallets outside the country, people hope to take it off the IRS’s radar.
But the blockchain ledger means transactions can still often be traced. And if you cash out to fiat currency eventually, offshore banks may report that. Use crypto legally as an investment, not to hide assets!
What This Means for Crypto Investors
The main takeaway is that the IRS is serious about crypto reporting and enforcement. With exchanges reporting more data, blockchain analysis tools, and new laws like the Infrastructure Bill, hiding crypto activity is getting very tough.
My advice is to report all crypto income, transactions, and cost basis data accurately. Keep detailed records of everything you do in crypto. And consult a tax professional if you have questions! Following the rules will prevent huge headaches down the road.
The IRS crackdown may seem scary but it will help legitimize crypto in the long run. As more people report activity properly, crypto can keep growing as a mainstream investment. We just have to make sure to pay Uncle Sam his fair share!