IRS is ‘setting the trap’ for bitcoin and virtual currency investors on 2020 tax form
The Internal Revenue Service (IRS) is making it harder for taxpayers to hide cryptocurrency transactions - whether on purpose or not - by adding a new question to the top of the new Form 1040.
The form posted last week states, "At any point during 2020 have you received, sold, sent, exchanged, or otherwise acquired financial interests in any virtual currency?" The only option is to say yes or Mark no.
If you answer incorrectly, you could find yourself in hot water with Uncle Sam exterminating tax evaders, tax experts warned.
Scroll to continue with the content
Yuvanızda İdeal Sıcaklığı Yaşayın!
"If you sign the form, it becomes a criminal offense for perjury," said Ryan Losi, auditor and executive vice president of PIASCIK, a tax agency. "The IRS is just collecting the data, amending the forms to specifically say you did or not, and setting the trap so the hammer can fall for years to come."
UKRAINE - 2020/12/06: In this photo illustration, the commemorative Bitcoin cryptocurrency coins can be seen over the US dollar banknotes. (Photo illustration by Mykola Tys / SOPA Images / LightRocket via Getty Images)
"The IRS makes it clear ..."
Since 2014, the agency has viewed virtual currencies as capital assets that must be treated as property for tax purposes. Similar to stocks or bonds, profits or losses from the sale or exchange of cryptocurrency are taxed as capital gain or loss. All income from mining Bitcoin or other cryptocurrencies is also taxable.
However, the IRS has been researching for years to see how many crypto investors have not adequately reported their holdings.
In 2018, Coinbase - the largest custodian for virtual currency - was forced to disclose information on 13,000 user accounts as part of an IRS subpoena. The agency also sued Bitstamp for disclosing additional information about a taxpayer who requested a tax refund of $ 15,475 in an amended tax return.
According to Lewis Taub, Chartered Accountant and Director of Tax Services at Berkowitz Pollack, the IRS included the same question on its 2019 tax return, but added it to Appendix 1 to report certain additional income or income adjustments to Brant Advisors + CPAs. The problem is that not many people file Schedule 1 with their tax return, he said, and the agency moved it to the first page of the tax return.
Since 2014, the IRS has viewed virtual currencies as an investment that must be treated as property for tax purposes. (Photo: Getty Creative)
"In my view, the IRS treats skipped virtual currency transactions the same way it treats US taxpayers' overseas bank accounts," Taub said. "By asking the question at the top of the first page of returns, the IRS is making it clear that any income from virtual currency gains or losses must be included in returns."
The Form 1040 instructions explain how and when to report your holdings and transactions in virtual currencies.
But cryptocurrency can be tricky, Losi said, because some people use their virtual currency account as a payment account - for example, when buying a Starbucks latte with bitcoin. But if you were to complete this purchase with profits from your cryptocurrency investments, it would be a taxable event, Losi said.
"That would go on Schedule D of the 1040," he said.
However, simply holding a virtual currency doesn't mean you have to be taxed on it.
"If you purchase the virtual currency and have not spent it or exchanged it for another currency, you have no tax-triggering event," said Losi. "It's an unrealized gain."
Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.
Fed Chairman Powell: The stimulus legislation deserves the lion's share of the credit for economic recovery, more would help
Workers will see smaller paychecks as part of Trump's tax deferral over the next year
President Trump's payroll order could leave Americans with a "substantial tax liability".
The IRS fails to collect billions in taxes owed by super-rich Americans
Tax Expert: Americans who fail to file leave billions of dollars on the table
Read more Cashay personal financial information, news, and tips
Kremlin critic Navalny lands in Russia, flying home despite arrest threat
Betty White marks 99th birthday Sunday; up late as she wants
Chiefs RB Clyde Edwards-Helaire faces ‘uphill battle’ to play vs. Browns
Ashley Graham bares (nearly) all in body-positive new post: 'I love me, not every day, but most'
Mass. Mom Inspired by Infant's Health Crisis Creates Special Onesie for Tiny NICU Patients
‘Bridgerton': Here Are All the Modern Songs That Get Classical Covers