It is very crucial to keep in mind that blockchains are essentially distributed in the form of public ledgers. This is indicative of the fact that just about anyone is going to be able to view the ledger at any given point in time.
In this article, I will be discussing “what happens if you don’t report cryptocurrency on taxes”. Keep reading till the end of this article to find out more information about the same!
What Will Happen If You Do Not Report It?
Straight off lets cover the basics of ‘what happens if you don’t report cryptocurrency on taxes’. The IRS has made it clear that Crypto is always taxed and any type of failure to report crypto on taxes is going to result in very steep penalties.
The punishments that the IRS levies against the Crypto Tax evaders are very steep. This is because tax fraud and tax evasion are considered to be federal offenses.
All depending on the severity, you are liable to face a tax due of up to 75% with a maximum of $100,000 fine or even up to five years in prison.
More On Cryptocurrency Tax Evasion
According to the Internal Revenue Service (IRS), there are primarily two kinds of Crypto Tax Evasion — Evasion Of Payment and Evasion Of Assessment. The penalties for each of the different types of Crypto Tax evasion also actually differ by a lot.
Evasion Of Payment
This occurs after a tax assessment has already been made and the taxpayer has concealed all of the funds and assets which could have been made use of for paying off the tax liability. This particular kind of tax evasion is now far less common in the space of crypto.
Evasion Of Assessment
As compared to the earlier one, this is a more common type of Crypto Tax evasion. This happens when a taxpayer knowingly underreports/omits income, or even overstates the deductions. A few examples of Crypto Tax Evasion include:
- not reporting the wages which were paid in the form of crypto
- not reporting the business income that had been received in crypto
- not reporting of the additional income which got received in the form of crypto
- underreporting of capital gains from various dispositions of crypto
- not reporting the capital earned from other dispositions and sales earned from crypto
Forgot To Report Your Cryptocurrency Taxes In The Past?
If you forgot to report your crypto taxes in the past then the best thing that you can do is amend your tax return from the year when you didn’t include crypto trades. You have three years from the date you originally filed, to submit your amended tax return.
There are a few investors who fear that making an amended return might increase their future audit risk but the IRS is more lenient than that.They make it easy on the people who make a good effort to properly pay their taxes.
Keep reading till the end of the article to find out information about “what happens if you don’t report cryptocurrency on taxes”!
Process Of Submitting An Amended Tax Return
If you are a person who has forgotten to report your crypto while paying your taxes, then you can follow these simple steps for being able to submit an amended tax return.
Here is a list of steps that need to be followed for making an Amended Tax return:
Step 1: Calculate The Tax Liability
The first step to submitting an amended tax return is figuring out the tax liability. For calculating the tax bill, you are going to need to calculate the income and capital gains that were made from crypto during the year.
To do so, you are going to need all of the accurate records of your cryptocurrency income events and disposals.
If you are having some kind of trouble in calculating this, then there are a lot of other available software online that can aid you in calculating your tax bill.
Step 2: Complete the 1040X Form
After you have already determined the tax liability, you are going to be able to download the IRS 1040X form. This is essentially the Amended U.S Individual Income Tax Return form. This particular form also comes with very easy-to-follow instructions and enables one to include updated/new information.
Make sure to fill in the details in the proper way so that no errors are there.
Step 3: E-File Or Mail Your Amended Tax Return
After you are done with amending your Tax return, you can send that through mail to the IRS.
Before sending, you also need to make sure that you have already attached the supporting/necessary documents. Additionally, if the amendment results are comparatively a higher tax bill, then you also need to include an additional form of tax payment along with the return.
| Tip: If you want to check the status of your amend tax return, you can do so by using the IRS’s official tool named the “Where’s My Amended Return”. |
To Wrap It Up!
You might think the other way and ponder on whether the IRS knows when a taxpayer does not report their crypto income. Well, in the more recent years, the IRS has taken a lot of steps to crack down on the Crypto Tax fraud.
This also involves working with various connections and contractors to find anonymous wallets on different blockchains like Ethereum and Bitcoin.
Thank you for reading up till the end of the article. I hope you found the information regarding “what happens if you don’t report cryptocurrency on taxes” to be useful.
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