Three years ago was the last time I included cryptocurrency in my Bozo Tax Tips. No matter how you slice it, when you dispose of cryptocurrency you have a taxable event. In the view of the IRS, every disposal must be individually noted on your tax return. If you have thousands of transactions, you may have hundreds of pages of such transactions to include on your return. (Thankfully, we can attach pdf’s to tax returns with the details rather than having to enter them into software.) There are now numerous products available to help you with cryptocurrency taxation (in the United States).
Adding to the “fun” with cryptocurrency taxation is that it is taking the IRS three years to issue guidance on anything in crypto. Take DeFi (decentralized finance) with crypto. Perhaps we’ll see the IRS issue guidance by 2024 even though it’s impacting tax returns in 2020. We can always hope….
The IRS is active in one area: trying to find individuals who are ignoring cryptocurrency. Over the last month the IRS has successfully enforced summonses against Poloniex and Kraken. To date, most IRS enforcement efforts in cryptocurrency have been going toward the low-hanging fruit: individuals who have not reported their cryptocurrency. I do expect the IRS to start looking at auditing large users of crypto. Given Commissioner Rettig’s remarks on the Tax Gap, IRS management clearly believes that there’s a lot of tax dollars to be found in cryptocurrency.
There is one truism, though: If you don’t report your cryptocurrency gains (and losses), you’re violating the law. So if you need to take some time to figure it out before filing your 2020 returns, make an estimate of your gains (or losses) and file an extension. Or you can choose the Bozo behavior of ignoring your cryptocurrency.
Tags: BozoTaxTips