Cryptocurrency traders, if they did well or were bankrupted by the market, are having to face the tune of the taxman. After the U.S. Internal Revenue Service (IRS) sent out thousands of letters to potentially tax evading crypto traders, many might be wondering how they should even approach the matter. Jorgen Rex Olson of AccountingWeb approached the topic with some friendly advice to those people.
Simply put, the bill has come. If you received either Letter 6173, Letter 6174, or Letter 6174-A from the IRS, there’s a good chance they want you to report on your crypto activity because they think you owe money on your taxes. He writes:
“Recipients of one of these letters should file amended or delinquent tax returns and, depending on the circumstances, get in touch with a qualified tax attorney[.] The IRS has made clear the fact that it will pursue criminal charges in cases involving cryptocurrency tax fraud or tax evasion.”
Now the question is, if you got into crypto, what tax laws does that qualify under? As with anything, it entirely depends on your conduct, Olson explains. If it was purely an investment, it would fall under the same tax laws as stocks or bonds and qualify for capital taxes. If it was used as a form of payment, the vendor should file it as an income tax.
What if it was used to pay you for your salary? “This payment would be subject to the normal withholding and reporting requirements for employment tax purposes,” he writes.
It can be a complicated matter in some cases, and Olson does recommend getting in touch with an accountant. But overall, however you interacted with crypto, if there’s a similar way of working with money or assets in the fiat world, it gets taxed like that.
This will be crushing news for libertarians and anarchists who got into crypto to avoid the government. That pipe dream of escaping society and laws through the magic of dark coins could only last for now. But as the old saying goes, “Nothing is certain except for death and taxes.”
Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as SegWitCoin BTC coins. Altcoins, which value privacy, anonymity, and distance from government intervention, are referenced as dark coins.
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