Three Ways to Stay Compliant with IRS Bitcoin Tax Laws
Cryptocurrency owners have been grappling with ways to accurately report their earnings to the U.S. Internal Revenue Service (IRS). With the pressure from the IRS on bitcoin owners to come clean with their earnings, there are suggested ways that individuals can avoid getting on the bad side of the law.
IRS Keen on Bitcoin Tax Compliance
According to an article by the Ohio County Journal on December 4, 2019, there are ways in which individuals who own crypto can abide by the IRS crypto tax laws to avoid incurring unknown debts. The crypto guidelines released in 2014 classified virtual currency as “property”, which means that the property laws in the U.S. apply to digital currency.
However, U.S. bitcoin owners did not find the 2014 crypto tax laws particularly helpful, as there were no guides on how to track and accurately calculate virtual currency transactions. Also, with an industry that is dynamic, the virtual currency tax law seemed “prehistoric”.
The ambiguity of the Notice 2014-21 caused a group of bi-partisan U.S. lawmakers to write to the IRS, asking for more clarity. In October 2019, the IRS published a new guideline for virtual currency holders. The new law touched on areas like hard forks and airdrops.
For Brian E. Ravencraft, partner at accounting and consulting firm, Holbrook & Manter, the best way for U.S. crypto owners to comply with IRS bitcoin tax laws is to adopt a habit of robust record keeping. The tax expert distilled the compliance matrix into a three-step process namely:
“1. Keep records of the dates of the transactions
2. Keep records of the numerical number of cryptocurrency units transacted
3. Keep records of the individual unit prices of the cryptocurrency in U.S. Dollars for the transaction dates”
As reported by BTCManager in July 2019, the IRS dished out over 10,000 warning letters to crypto holders requesting accurate reporting of assets and transactions. The letter also warned against tax evasion. Bitcoin owners should keep proper records of transactions made to avoid being scapegoats.
Tax Authorities Clampdown on Bitcoin Tax Evaders
As the popularity of bitcoin and other altcoins continue to increase, tax agencies globally have their radar on the nascent industry. With the anonymous nature of cryptocurrency, some agencies complain that bitcoin holders are evading taxes, with some countries putting regulations in place to curb crypto tax evasion.
In Japan, the Tokyo Regional Taxation Bureau following investigations discovered that many virtual currency holders failed to report their income. The reason for the evasion is due to the country’s high tax rate on crypto, which is over 50 percent. Consequently, Japan’s tax agency is set to file a complaint against large earners and offer stiff penalties.
Australia is another country bent on cracking down on bitcoin tax evaders. The Australian tax authority in collaboration with tax agencies from the U.S., the Netherlands, Britain, and Canada, joined forces to clampdown on crypto offenders.
Also, crypto holders in Australia complain of the country’s draconian bitcoin tax laws, with an Australian taxed five times more than the value of virtual currency owned.