In the past year, bitcoin and other cryptocurrencies gained popularity among investors around the world. Cryptocurrencies exist as virtual tokens that allow investors to electronically transfer assets in a secure way using digital technology. However, they can present a multitude of issues when it comes time to report taxes.
Many crypto investors are unaware that the IRS requires taxpayers to report bitcoin earnings and losses when filing their taxes. According to the IRS, almost 40 percent of Bitcoin investors will commit tax fraud in 2018. Countries across the world are beginning to take a strict stance on crypto tax evasion.
Earlier this month, Japan announced a new system that will help catch investors who do not report crypto earnings on their tax forms. The system will allow the Japanese government to access a crypto transaction report for a person suspected of tax evasion. The reports will also provide names and addresses for individuals involved in the digital transactions. This is troubling to many crypto investors.
Israel quickly followed in Japan’s footsteps. In the past few weeks, the Israeli government has brought hundreds of cases to court involving crypto investors who failed to report earnings. Additionally, Spain is in the process of monitoring over 15,000 crypto investors to ensure they are filing their taxes correctly.
The IRS is continuing its efforts to prevent crypto tax evasion in the United States. Unfortunately, filing taxes for cryptocurrencies can be confusing for even the most honest investors. The government requires taxpayers to report capital tax gains based on the “original value of the asset.” However, this is not always clear in a crypto transaction, and people can easily fall into tax evasion.
The government can penalize crypto tax evasion the same as failing to report any other earnings. These penalties can involve severe fines and several years in jail. It can be beneficial to speak with an experienced tax attorney if you have crypto assets to make sure you file your taxes properly and avoid any penalties.