In recent times, the IRS has begun to regulate Bitcoin, Ether, Dash, and other cryptocurrencies, aiming to collect taxes from investors engaged in trading, bartering, or exchanging these digital assets for services. The taxation rules for cryptocurrency remain complex and vague, posing challenges even for experienced tax experts. For those needing professional assistance with cryptocurrency tax issues, seeking a knowledgeable tax attorney with a strong background in tax litigation can be a prudent choice. Such an attorney can help with voluntary disclosures, negotiate with the IRS on the client's behalf, and provide robust defense in court if necessary.
The federal government treats cryptocurrencies like Bitcoin as property, not currency, when reporting taxes on them. This means that tax principles applicable to property, including those for capital gains and losses, also apply to transactions involving cryptocurrencies. For instance, if you purchase Bitcoin at one price and sell it at a higher one within the same year, your profit is taxable under current IRS guidelines.
The primary challenge for traders and investors is maintaining precise records of their transactions. Failure to accurately report these virtual transactions can lead to penalties, interest, and criminal charges. Accurate reporting requires maintaining records of the U.S. dollar value at the time of each transaction, which might necessitate thorough research for correct tax calculation.
Additionally, similar to other types of income, taxpayers might need to file FBAR for foreign cryptocurrency accounts if the total value exceeds $10,000 at any point during the year. The IRS has ways to uncover such transactions, making compliance crucial for those with foreign cryptocurrency investments.
Consulting with a tax attorney experienced in handling such matters can be a valuable step for individuals facing cryptocurrency tax issues.
