US Tax Professionals Discuss Tax Rules Around Bitcoin and Other Virtual Transactions
Selling virtual currency is a reportable transaction that can result in a hefty tax bill if handled improperly
North Vancouver, BC -- (ReleaseWire) -- 11/18/2019 --When it comes to virtual currencies, there was no IRS guidance prior to 2014, and many people did not understand that selling virtual currency was a reportable transaction. But Bitcoin, or any other virtual currencies used in a transaction, must be reported to the IRS. For more, go to: https://www.us-taxprofessionals.com/newsletter.php
As cross border tax accountants for Americans and Canadians, the team at US Tax Professionals in Vancouver wants to emphasize the importance of considering tax implications of virtual currency transactions, and published a blog that addresses how the IRS is approaching the subject.
In 2018, the IRS announced a Virtual Currency Compliance campaign to address noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. In 2019, they began sending letters to taxpayers with virtual currency transactions that potentially failed to:
- Report income and pay the resulting tax from virtual currency transactions; or
- Did not report transactions properly.
More than 10,000 taxpayers received letters, whose names were obtained through various ongoing IRS compliance efforts. There were three variations of the letter: Letter 6173, Letter 6174 or Letter 6174-A. All three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors.
In October 2019, the IRS expanded its guidance to include two additional pieces of information meant to help taxpayers understand reporting and tax obligations concerning virtual currency transactions. This expanded guidance includes:
- Answers to common questions by taxpayers regarding the tax treatment of a cryptocurrency hard fork
- FAQs that address virtual currency transactions for those who hold virtual currency as a capital asset
The article contains helpful definitions for terms like virtual currency, cryptocurrency, and hard fork. For all intents and purposes, virtual currency, as generally defined, functions in the same manner as a country's traditional currency and is treated as property for US federal tax purposes. The same general tax principles that apply to property transactions also apply to transactions using virtual currency. For example, wages paid by receiving cryptocurrency are taxable and must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes.
It's important to remain aware that forgetting, not knowing, or generally pleading ignorance about reporting income from these types of transactions on your tax return is not viewed favourably by the IRS.
Fortunately, it's not too late to report income from virtual currency transactions on an income tax return, even though the due date for filing has passed. Taxpayers can still report income by filing Form 1040X, Amended US Individual Income Tax Return within 3 years after the date the of the original return or within 2 years after the date tax was paid (whichever is later).
Taxpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax penalties and interest. In more extreme situations, taxpayers could be subject to criminal prosecution, which can carry a maximum penalty of up to five years in prison and a fine of up to $250,000.
For assistance on filing taxes or late forms where virtual currencies are involved, contact US Tax Professionals in Vancouver at (604) 281-3318.
About US Tax Professionals
US Tax Professionals provide tax services for dual American and Canadian citizens in Vancouver. Founded in 2013, they specialize in taxation for US citizens and expats, taxation and accounting for business, cross-border taxation for US and Canadian citizens, as well as accounting and taxation of alternative investments, including private equity funds and hedge funds.
For more information, visit https://www.us-taxprofessionals.com/ call (604) 281-3318
US Tax Professionals
Company Website: https://www.us-taxprofessionals.com
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