Here’s how you can really comply with the IRS and avoid hefty penalties + 5 tips to report your crypto exchanges accurately.
As Elon Musk tweets about the benefits of investing in cryptocurrencies like Bitcoin and Dogecoin, several businesses and individuals alike have started investing in virtual assets, leading to rising trends in virtual asset investments. But, this is not new. Cryptocurrency has been in the game since 2009.
Not a lot of businesses realize that much like any other asset, a virtual asset like Bitcoin or Dogecoin or any other virtual currency, really, must be reported for tax compliance.
Many are under the misconception that virtual assets are non-taxable and don’t have to be reported.
But that’s far from the truth.
How Does The IRS Define Crypto Exchanges & Virtual Assets?
The IRS states that any virtual asset or virtual currency is treated as “property”. This means that any capital gains or losses you make through your virtual assets must be reported to the IRS. The same reporting rules that apply to a physical asset would also apply to your virtual assets.
But what does this mean for you as a taxpayer? How do your virtual assets make a difference to the IRS? Is there a significant impact on the economy?
Impact Of Unreported Virtual Assets
The White House and the Treasury Department have released a statement recently, which clarifies the impact crypto assets have on taxes. Cryptocurrencies like Bitcoin are currently valued at $2 Trillion, leaving room for unreported assets and gains. This is leading to a huge tax gap – a difference between the tax you owe and the tax you pay. Currently, the White House estimates that this tax gap may stretch further and create a $7 Trillion gap by the end of the decade.
Penalties For Not Reporting Your Virtual Assets
To counter the impact of tax gaps and corrupt income-hiding practices of taxpayers, the IRS is aggressively monitoring all virtual transactions.
Forbes first reported that the IRS is on a mission to crackdown fraudulent taxpayers who are hiding their virtual assets.
It is essential to understand that the IRS is not only penalizing individuals and businesses for unreported virtual assets but also assessing criminal offense charges for tax evasion.
This means if you do not report your virtual assets, you could end up paying millions or even billions of dollars in penalties and endure possible imprisonment.
How To Report Your Virtual Assets With 1099 Forms?
With the rise in the importance of regulatory compliance, it is essential for virtual asset service providers, third-party network transaction enablers, and businesses involved in dealing with crypto assets to become transparent in their approach towards virtual asset reporting.
5 Tips To Ensure Virtual Asset Reporting Accuracy
- Understand Your Virtual Assets: Understand how your virtual currency qualifies for IRS taxes and get a clear picture of reporting gains and losses made through your virtual assets. This IRS resource will come in handy for your research.
- Choose Voluntary Reporting: The IRS encourages voluntary compliance, which keeps your business in the good books for as long as you stay compliant. This means you have to be transparent and accurate with your 1099 returns that report your crypto transactions.
- Validate Tax IDs: An overlooked part of 1099 reporting; Tax identification numbers play a crucial role in defining the accuracy of your reports. So, before you enter the TIN/EIN provided by your crypto provider, be sure to validate the details. Further, check the real-time compliance status of your virtual asset providers.
- Hire An Experienced CPA: If you’re new to reporting your virtual assets or if you’re not sure about how to go about virtual asset reporting in 1099 forms, you can hire a licensed CPA who is relatively experienced in cryptocurrency and virtual assets. A good CPA will help you sort your crypto exchange reports and ascertain in reducing the tax burden.
5. Leverage Digital Compliance Solutions: A compliant virtual platform by your side that takes care of all your virtual asset reports will certainly help you navigate through the gigantic complexities of crypto reporting and regulatory compliance. Verified e-file providers like Tax1099 provide API solutions to further accelerate your reporting and compliance ops.
Using Tax1099 To Report Crypto Exchanges & Virtual Assets
Tax1099 is an IRS-authorized e-file provider enabling businesses to report informational taxes. Our dynamic digital infrastructure allows users to report their crypto exchanges from anywhere around the world on any smart device.
You can choose our simple-to-follow 1099 crypto reporting solutions or our customized API solutions (recommended for first-time filers and bulk filers).
With automatic tax calculations, most-used accounting software integrations, real-time TIN Matching, you are all set for an easy and compliant 1099 reporting season.
And you do not have to worry about data privacy and security. Tax1099 is encrypted with the 256-bit advance encryption standard, which is the most powerful encryption used by several U.S. authorities and banking institutions to protect and encrypt information.
With our reasonably priced e-file solutions, you’ve really got it all in one place.