The Internal Revenue Service (“IRS”) has been figuring out how it will deal with virtual currency investments since at least 2014. Tax policy regarding Bitcoin and other cryptocurrencies in the U.S. is now pretty clear, and the agency is coming after crypto investors who haven’t paid taxes on their holdings.
Bitcoin and the thousands of alternative coins that followed have made millionaires out of many. And, until recently, these investors have largely avoided paying taxes. The IRS is already pursuing legal action against Coinbase, the most widely-used Bitcoin exchange in the United States, and it isn’t letting anyone off the hook. Many cryptocurrency investors may want to find ways around paying taxes on their virtual currency assets, and some of them look overseas.
Avoiding your taxes completely is not possible. However, Happy Tax employs top cryptocurrency accountants that can help you minimize your tax bill. The skilled and experienced Certified Public Accountants (“CPA”) at Happy Tax specifically focus on the needs of cryptocurrency investors and have been trained on the most current details of U.S. tax policy. If you hold cryptocurrencies, the professionals at Happy Tax can help you minimize your tax liability without putting you at risk of crossing the IRS.
Foreign Bank Accounts as Tax Shelters? Think Again…
Americans hold assets in foreign banks for several reasons. Perhaps they travel regularly, or they have businesses operating in different parts of the world. Some people, however, are tempted to use offshore bank accounts to commit financial crimes, including tax evasion. Many people believe – incorrectly – that do don’t have to pay taxes on money held in foreign accounts. And if you do, so what? It’s not like the IRS will ever know about it, right? Wrong.
In the past, people could open Swiss bank accounts without even providing a legal name. Due to the nation’s strict privacy laws, holders of Swiss bank accounts could stay nearly anonymous – making them attractive for people trying to hide money from the IRS. However, these days are long gone. Swiss banks have spent much of the last decade trying to shake their poor reputations; this means they’re naming names to the IRS. Last year, financial giants like Credit Suisse and UBS were caught up in IRS sweeps looking to nail tax evaders, and they’re singing like canaries.
Foreign Banking Is More of a Headache Than It’s Worth
Unless you live or work internationally, holding a foreign bank account as a U.S. citizen is probably more trouble than it’s worth. First, the IRS requires you to report worldwide income on your tax return. So, even if you make money outside the U.S., you must report it to the IRS and pay proper taxes. Second, if you have an interest in a foreign bank or financial account, this must be reported separately on a Schedule B attached to your tax return.
The IRS isn’t the only regulator involved in monitoring foreign bank accounts. The Treasury Department requires all persons with foreign bank accounts to file a Report of Foreign Bank and Financial Accounts (“FBAR”) if the foreign accounts exceed $10,000 in value at any time during the year. So if you buy $5000 worth of Bitcoin using a foreign account, and it doubles in value during a peak in the market, FBAR reporting requirements are triggered even if the price goes back down.
The penalties for keeping a foreign bank account without informing the IRS or Treasury Department are staggering. Not filing an FBAR is punishable by up to $10,000 in penalties per violation – and that’s for an accidental omission. If the agency finds the FBAR non-reporting to be intentional, these penalties jump to $100,000 or 50% of the foreign-held account balance, whichever is greater. There is no statute of limitations on civil tax fraud, so the IRS can come after you for as many back taxes – plus interest, fees, and penalties – as they can find. Oh yeah, and don’t forget the 20 percent inaccuracy penalty the IRS usually tacks on in these cases, or the 75% civil fraud penalty applies in extreme cases.
Having a foreign bank account and not reporting it can cost you a lot of money. That’s pretty bad – but it gets worse. Both the IRS and the Treasury Department can prosecute you for financial crimes for failing to properly report a foreign bank account. Filing a false return is a felony, so lying on your tax return can land you up to five years in federal prison. The IRS can criminally prosecute tax evasion as far back as six years, so this risky behavior can catch up with you long after you’ve abandoned the scheme. Crimes related to failing to file an FBAR come with financial penalties of up to $500,000 and a prison term of up to ten years.
Play it Safe – Pay Your Taxes
In the past, cryptocurrency investors have enjoyed a marketplace largely free from government intrusion. Some continue to believe that they can dodge taxation by through rumored loopholes, like stashing assets in a foreign bank. Unfortunately, this is not the case, and the IRS is actively pursuing cryptocurrency investors for back taxes.
Despite everyone’s wishes to the contrary, avoiding tax liability altogether is not possible for most people. Attempting to evade federal taxes by old schemes like opening a Swiss bank account is much more likely to land you in hot water with the Feds than protect you from tax exposure. As a result, cryptocurrency investors need to start seriously considering their tax liability when making financial decisions.
IRS enforcement against cryptocurrency investors is ramping up, and new tax laws came onto the books in 2018. With all these new developments, cryptocurrency investors face a challenging tax environment. In these circumstances, a good tax professional can be invaluable.
The trained cryptocurrency accountants at Happy Tax can help you make sure your wallet is protected from the IRS. Happy Tax employs Certified Public Accountants (“CPAs”) to provide you with the highest-quality tax advice and the degree of service you deserve. Don’t make the mistake of trying to evade the IRS. Instead, talk to a Happy Tax professional today to discuss how you can safely and legally minimize your tax liability.