Cryptocurrency and its tax implications are pushing businesses into a major income-hiding spiral but it doesn’t have to be that way.
There is no denying that the virtual asset industry is performing better than ever. Thanks to pro-crypto tweets from Billionaires like Elon Musk, the trends in crypto investments are over the roof. But not all is rainbows and sunshine here.
According to the IRS, crypto assets or virtual assets must be treated like physical properties. This means the same reporting regime that you follow for the physical property must be used to report your crypto assets. While this may sound okay, there is a gray area.
Crypto Exchanges & 1099 Reporting
Businesses and individuals that buy cryptocurrencies like Bitcoin or Dogecoin invest in these virtual assets for their quick and through-the-roof gains.
But since the IRS requires taxpayers to report crypto assets, the tax liability is also on the gains made off these virtual assets.
For example, if you have invested in Bitcoin and end up making some gains on those assets by the end of the year, you must report the virtual asset and the gains you are making with the said virtual asset through Form 8949, 1099-K, and other individual income tax returns to the IRS.
Significance Of Reporting Crypto Exchanges
It is important to understand that the IRS is on a mission to crack down on fraudulent individuals and businesses that are hiding millions and even billions of dollars in income and gains. These incomes and gains are generated mostly through cryptocurrencies.
With the recent statements released by the Treasury Department and the White House, it is clear that the $7 Trillion tax gap can cause some serious implications to the U.S. economy within the next decade.
In a move to curb the repercussions of unreported virtual assets and incomes, the IRS is accelerating its regulatory compliance operations. This could mean transaction monitoring, transaction limits, payment caps, interval reporting, and other compliance regimes.
With the recent transaction limits and payments cap levied for Form 1099-K, it is clear that the IRS is aggressive in its approach to establishing compliance, as it should.
It is also important to note that businesses and individuals that are hiding their virtual assets and crypto gains are not just hit with hefty penalty assessments but criminal offense charges and possible imprisonment.
This is a cue for all businesses and self-employed individuals to choose voluntary compliance and ensure transparency with their virtual asset tax practices.
How To Comply With The IRS For Crypto Exchanges
Contrary to popular belief, reporting your virtual asset transactions, crypto exchanges, and the incomes you have made through crypto trade is easier than you think.
Since IRS states that virtual assets are treated the same as the physical ones, your tax regimes do not have to undergo drastic changes.
However, it is important to understand what goes where and what kind of forms must be used to report your virtual “properties”.
To give you a fair perspective:
- All your crypto assets or virtual assets must be reported on Form 8949.
- Third-party crypto exchanges must be reported on Form 1099-K subject to the transaction and payment limits.
But that’s not all.
Regulatory compliance is a huge deal to avoid penalties.
If you’re reporting all your virtual assets and gains but fail to correctly report both your TIN/EIN and your virtual asset vendor’s tax information, then your returns can be rejected for willful disregard and neglect.
Managing Virtual Assets With Tax1099
This is where a digital tax compliance enabler like Tax1099 comes into play. We have been helping thousands of businesses with virtual asset reporting and compliance regulation.
Businesses that trade every day have a lot to lose if they do not get their virtual asset tax regime right.
While it is a good practice to have a licensed CPA to help report correctly, it is just as important to validate the reports and other tax information, which qualify your reports as “accurate” and “compliant”.
Tax1099 provides a variety of digital tax compliance solutions, including but not limited to secure e-files, real-time TIN verification, automatic tax calculations, virtual form directory, state and federal reporting guidelines, remote tax assistance, 12+ accounting software integrations, bulk e-filing, workflow management, and more.
You can sign-up and prepare your tax returns for free.
Only pay us when you want to validate your information and submit your returns to the IRS.
And even then, each form costs you as little as $0.55
Sign Up For Free If you’re still a little unsure about reporting your virtual assets to the IRS, these eye-opening assessments may change your mind.