How do you protect your gains from the IRS? What happens when you don’t?
Read on to find out exactly why you should be paying attention to paying taxes, especially from this year.
There are three letters that strike fear into the heart of every single Bitcoin hodler and trader and no it’s not the letters XRP. I’m of course talking about the IRS and we all know that they mean business.
And while those of us in the world of cryptocurrency believe that we need to fight the power structures that be, until we’re able to create a decentralized monetary system, we have no choice but to play by their rules. So how do you protect your gains?
I suppose you do have a choice to simply not file your taxes or report your crypto gains but the truth is that you’re really leaving your life up to chance at that point. I’m going to be showing you how to keep the IRS off your back. In this case, how you protect your gains, is by preventing damages and fines over those sweet ‘To the Moon’ trades.
I think you are going to note one of the greatest strengths of crypto is also one of its weaknesses. I’m referring to the fact that crypto is certainly on the fringes of legality.
We’re seeing more and more societal and governmental acceptance each year but we aren’t there yet. Just over the last few years we’ve seen new bills introduced to Congress that could help simplify the tax process surrounding cryptocurrency but the fact is since you’re getting ready to file for 2020, that legislation is not going to help you.
So what are we going to do in order to comply with what the government is going to require of us for last year?
- Don’t include your crypto currency or Bitcoin gains or losses on your tax documents while in previous years. Not a good idea though. The truth is the government is now coming down hard on people who hide crypto from their tax forms. Earlier last year there were thousands of letters that were sent out from the IRS to the bitcoin and crypto holders who’d conveniently left their crypto gains off their tax forms. The government is now watching in addition as of this year TurboTax is asking a specific question to users if they’ve sold bought or traded crypto currency during 2020.
- The best way to keep the IRS off your back is to do the minimum that they require and that’s basically to file your taxes properly and include all of your income including crypto gains. The front for most people with option number two is they simply don’t know how to do it. Keeping up with your crypto trades can be quite daunting. In fact for most people who regularly trade in crypto, it’s nearly impossible. You had to keep spreadsheets for every trade and then turn that over to your CPA. You can try to do it yourself but crypto tax laws are quite complicated and it’s actually concerning just how little the average member of the crypto community knows about the tax laws themselves. Day traders, swing traders, and scalpers that are making moves every day without even understanding how to track their crypto for their taxes. Almost anything you do with Bitcoin or cryptocurrency is a taxable event other than huddle or simply transfering your Bitcoin.
Unless you’re an accountant yourself the only way to really handle crypto taxes is by using a third party service or software that is extremely familiar with the crypto tax laws. And I’ll tell you, this is most likely not your hometown CPA. We’re just not there yet with crypto. The great news is there are plenty of services out there that can help you keep all of your crypto tax issues from becoming problems.
We believe we do a pretty good job of it ourselves.
See how BearTax can help you prepare crypto tax documents that cover all the grounds for you!