Misreported Crypto Gains? Fix Mistakes Before It’s Too Late

What You Need to Know

  • Advisors should be on alert and take the time to catch up now, before the IRS toughens enforcement.

It’s no secret that all eyes seem to be watching cryptocurrency as we approach year-end—including the eyes of Congress and the IRS. As most advisors know, the basic tax rules that apply in the world of virtual currency are the familiar rules that govern sales and exchanges of any other form of property. 

Today, however, it’s more important than ever to be up to speed on the cryptocurrency tax and reporting rules. Congress tightened the reins even further in the Infrastructure Investment and Jobs Act of 2021. The popularity of virtual currency has grown exponentially in the last year alone — and IRS enforcement efforts are only going to increase alongside that popularity.

Advisors should be on alert and take the time to catch up now, before it becomes too late to fix clients’ mistakes in reporting cryptocurrency gains. 

Virtual Currency: The Basics

In 2019, the IRS started a campaign to raise awareness among taxpayers who they believed to have engaged in cryptocurrency transactions. Many of your clients may have received educational letters. Now, via the Operation Hidden Treasure program, the IRS has increased enforcement efforts to identify unreported income — seizing over $1.2 billion in cryptocurrency during 2021 alone.

Cryptocurrency is a type of virtual currency that uses cryptography to offer secure transactions that are recorded in a type of online ledger (such as blockchain). Bitcoin, Ethereum and Litecoin are all examples of cryptocurrency.

When cryptocurrency is sold or exchanged, taxpayers must report any gain or loss in the same manner as any other property transaction (i.e., in the same manner as a stock sale). Gain or loss is measured by the difference between the taxpayer’s adjusted basis in the cryptocurrency and the amount received, measured in U.S. dollars.

The actual tax treatment depends on the…

Read more at www.thinkadvisor.com

Leave a Reply

Your email address will not be published.