Cryptocurrency Investor? How to Stay in Compliance with the IRS

For early adopters of Bitcoin, Ethereum and other popular cryptocurrencies, the profit potential has been simply stunning. While there have been some heart stopping moments and frightening ups and downs, the clear long-term trajectory for cryptocurrency has been upward.

If you are one of those early adopters who profited, you probably feel pretty good about your decision. But your good fortune could soon take a turn that could leave you in trouble with the IRS.

After years of taking a hands off approach to cryptocurrency investments, the IRS is making up for lost time. At first, the IRS appeared unsure how to calculate virtual profits or tax cryptocurrency gains. That is no longer the case. The rules are now largely in place, and it is time for those who profited to pay up.

There has been movement on the cryptocurrency taxation front, and the IRS will take notice of your holdings - and your profits. The tax agency has recently obtained data from major cryptocurrency exchanges and is sending letters to large holders of these virtual currencies. Don't wait for the IRS to contact you. The best approach is to do your homework now and make a plan for paying what you owe. Here are some simple tips to help you stay in good standing with the IRS.

Learn the Rules of Cryptocurrency Compliance

There has been confusion over how cryptocurrencies were to be taxed. The IRS itself has issued a number of different rulings in that regard. With conflicting information and no clear direction, many cryptocurrency investors chosen to avoid the whole thing.

Studies suggest only a small percentage of cryptocurrency investors have reported their holdings to the IRS. Some cryptocurrency investors didn't understand they were required to report the investments, while others assumed the transactions were anonymous. The IRS may have been slow to categorize cryptocurrencies, but the tax agency now has firm rules in place. Now that the IRS has proven that neither contention is correct, it is time to learn the rules and follow the reporting requirements: IRS Virtual Currency Guidance.

Whether you do your own homework or seek out expert advice, the more you know the better off you will be.

IRS Frequently Asked Questions on Virtual Currency Transactions

Estimate Your Gains from Cryptocurrency

Once you know the rules, the next step is to estimate your potential gains. The rules governing cryptocurrency profits are complex, but you should still be able to estimate the possible tax hit.

It may take some time to reconstruct the purchases and sales you made along the way, so take your time and gather as much information as you can. If you are missing some information, you may be able to find what you need through your favorite cryptocurrency exchange. Many major exchanges keep detailed records of purchases, sales and other cryptocurrency transactions. Once you know how much you made on those cryptocurrency transactions, you can work to calculate the taxes you might owe.

Tax ExpertWork with a Cryptocurrency Tax Relief Expert

Tax calculations are not for the faint of heart, and it is easy to make a mistake. If you want to avoid problems with the IRS and avoid penalties and interest, you need expert help and guidance.

The cryptocurrency market is still relatively new, and the current IRS tax treatment of these virtual assets is even newer. In anticipation, some tax experts have started specializing in these alternative investments. Seeking their expertise could help you pay what you owe while avoiding penalties and interest.

If you already have a Certified Public Accountant, start by asking about their experience with cryptocurrency investments. If your current tax advisor is not a cryptocurrency expert, find someone who understands how these unique assets are taxed. It may take some time, but it is important to find an expert you can trust.

The IRS may have been slow to shine a light on the cryptocurrency revolution, but they have caught up to it. Some early adopters have already received notices from the IRS. Others are scrambling to calculate their profits and pay what they owe. The tips listed above will help you develop a plan, so you can stay in good standing with the IRS.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution speci, who knows how to navigate through the IRS storm, and will advocate on your behalf, contact us - Tower Tax Relief LLC.  We’ll schedule a confidential consultation to explain your options to permanently resolve your tax problem. Call us today, we are ready to help - 469-206-4050.