If you have a Coinbase account, you’ve probably seen notifications pop up on your phone or computer gently reminding you to pay taxes on your cryptocurrency investments. You may be tempted to ignore these polite blurbs as yet another irrelevant piece of data in our overly-informed lives. However, unlike many of the things that flash across our screens, this is a critical warning that every cryptocurrency investor should heed.
The Internal Revenue Service (“IRS”) has taken its time figuring out how it will deal with virtual currency investments. In the meantime, Bitcoin and the thousands of alternative coins that followed have made early investors millions of dollars. Until recently, these investors have largely avoided paying taxes. The IRS, however, isn’t letting anyone off the hook.
It’s not possible to completely avoid paying taxes on your cryptocurrency investment, but Happy Tax offers tax advice and planning services that can minimize your exposure. Happy Tax employs the most skilled and experienced Certified Public Accountants (“CPA”) that specifically focus on the needs of cryptocurrency investors. If you have a cryptocurrency wallet, the professionals at Happy Tax can help you minimize your tax liability.
No More Gray Area – The IRS Wins Major Victory in Enforcing Virtual Currency Tax
The IRS has treated cryptocurrencies as taxable assets since 2014, and the agency recently filed suit in federal court seeking retroactive tax assessments against millions of virtual currency holders. In the suit, the agency reported that it received only about 800 returns reporting Bitcoin-related gains or losses in 2015. Given that Coinbase currently has about 6 million active users, the IRS has argued that most cryptocurrency holders are under-reporting their investment income. Apparently, U.S. Federal Judge Jacqueline Scott Corley agrees.
Just after Thanksgiving, Judge Corley ordered Coinbase – the largest Bitcoin exchange in the United States – to hand over information on over 14,000 user accounts to the IRS. Specifically, Coinbase must disclose the name, date of birth, address, and taxpayer ID of these customers, most of whom were the highest-volume traders between 2013 and 2015. These 14,000 account holders can now expect an IRS enforcement action any day now, including fees and penalties for failing to properly report their cryptocurrency income in the past.
Until recently, cryptocurrency investors have enjoyed an investment environment largely free from government intrusion. Some continue to believe that they are protected from tax exposure under loopholes like the like-kind exchange rule found in Section 1031 if the Internal Revenue Code. Unfortunately, however, this is not the case. Bitcoin and other virtual currency investments are taxable assets, and the government is making sure the investment community gets this message loud and clear.
The IRS Goes After Coinbase Users, and It’s Only the Beginning
The IRS is moving in on cryptocurrency markets, and fast. Since the agency filed suit against them in federal court, Coinbase has fought hard to protect its users. However, most experts agree that this is the beginning of the end for virtual currency investors who have skirted their tax liability.
The government is pursuing its missing tax revenue very aggressively. While only 14,000 Coinbase user accounts are impacted by the recent ruling, the IRS initially requested information on all Coinbase customers. Coinbase won a small victory by limiting the scope to only a fraction of its active users, but the initial scope of the IRS demand foreshadows greater enforcement across the board. The 14,000 Coinbase users now known to the IRS are the big fish – those who had Bitcoin investments valued at $20,000 or more at any time between 2013 and 2015. However, after this early win in enforcing tax laws against cryptocurrency investors, the IRS shows no sign of slowing down.
How to Protect Your Cryptocurrency Assets from IRS Penalties
The IRS issued guidance regarding the tax treatment of cryptocurrencies in 2014, but virtual currency holders haven’t seen much by way of enforcement actions since then. Because these assets are so new, both the IRS and the investment community have struggled to work out how, when, and why cryptocurrency should be taxed. Now that the dust has settled, many Bitcoin investors may be looking at a hefty tax bill.
Now that cryptocurrencies have made their way into mainstream finance, the IRS is aggressively pursuing investors who have not paid their taxes. Avoiding tax liability altogether is not possible for most virtual currency holders, and attempting to evade federal taxes can land you in real trouble. As a result, cryptocurrency investors are starting to pay attention to their tax liability, many for the first time.
With IRS enforcement ramping up and new tax laws coming onto the books in 2018, cryptocurrency investors face a challenging tax environment. When this is the case, a trained tax professional can be invaluable. By helping you manage your cryptocurrency assets in a way that limits your financial liability, the trained cryptocurrency accountants at Happy Tax can help you make sure your wallet is protected.
Concerned About the IRS? Happy Tax Can Help
Tax season is upon us, and many of us are already working hard to prepare our tax returns. While many of us choose to do it ourselves using software or apps, things can get complicated quickly when figuring out how to properly report our cryptocurrency holdings to the IRS.
The tax professionals at Happy Tax are licensed Certified Public Accountants, not just bookkeepers or unlicensed tax preparers. As a result, Happy Tax customers can rely on the extensive qualification, competency, and ethical standards required for licensing. The CPAs at Happy Tax worked hard to achieve the highest professional standards and then went one step further to get specialized training in cryptocurrency tax compliance.
Happy Tax is committed to providing cryptocurrency investors with the highest-quality tax advice and preparation services. In order to ensure all Happy Tax CPAs have the expertise necessary to achieve this goal, each tax professional has been trained in the rules and regulations that apply to Bitcoin and other virtual currencies. If you have virtual currency assets, you can count on Happy Tax to get you the tax planning and preparation services you need to keep the IRS off your back.