In the last decade, cryptocurrency has gone from a little-known or understood commodity to a common investment and a source of payment used by some of the world’s biggest corporations. As more people buy and sell these virtual currencies and use them for everyday purchases, some fail to understand the significant tax ramifications, including detailed reporting requirements, that can come with investing in, or merely utilizing crypto. This can be a major mistake, as the IRS has been more attentive to failures to file proper tax returns related to virtual currencies in recent years. The penalties for failing to report or pay taxes on exchanges of cryptocurrency accurately can be quite steep and can even lead to criminal tax liability if perceived to be willful.
At the Tax Law Offices of David W. Klasing, many of our tax professionals are both licensed tax attorneys and certified public accountants. We provide the best of both worlds in terms of helping you keep records and properly file tax returns related to virtual currency as well as defending you against any civil or criminal issues that arise.
If you have multiple years of substantial non-reported taxable cryptocurrency transactions, it is in your best interest to reach out to the government than to wait around for them to reach out to you.
What is the Voluntary Disclosure Program?
The voluntary disclosure program allows taxpayers who have committed past tax crimes to be brought back into compliance in almost all cases without facing criminal tax charges. The key is that you must disclose your fraudulent behavior and correct the returns before the IRS opens an audit or a criminal tax investigation into your returns. At the Tax Law Offices of David W. Klasing, our skilled Tax Lawyers and CPAs have years of experience successfully guiding our clients through the voluntary disclosure program and bringing them back into compliance. In fact, at times our voluntary disclosure work has accounted for 80% of our book of business.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
To set up a consultation, call us today at (800) 681-1295 or schedule online at your convenience.
What does the IRS Consider “Cryptocurrency?”
Cryptocurrency is a type of virtual currency that can be traded and transferred directly from person-to-person, such that transactions involving this type of currency do not need to go through a centralized bank or financial institution. As such, transactions can be both safe and anonymous, and users avoid having to pay bank and transfer fees. The “cryptocurrency” itself, the most popular type of which is Bitcoin, is just a piece of code that exists as a secure computer file powered by an open-source code known as the blockchain.
Blockchain is a type of virtual ledger that keeps track of all the individual transactions involving each unit of virtual currency. The “blocks” are the individual transactions that make up the “chain” of the underlying code. Most forms of cryptocurrency were designed with an artificial scarcity in the model. For example, no more than 21 million bitcoins will ever exist. This has made these investments attractive for those looking to diversify their portfolios in recent years. Also, companies are slowly beginning to accept Bitcoin as a form of payment, and some employers are even paying their workers or offering bonuses in Bitcoin.
How Do Taxes on Cryptocurrencies Work?
For the purposes of federal taxation, cryptocurrencies are considered property, like a house, rather than an actual currency like U.S. or Canadian dollars. As such, you are required to keep track of all capital gains and losses associated with the selling or trading of the cryptocurrency on Schedule D of your return. While purchasing the cryptocurrency does not qualify as a taxable event, whenever you sell, exchange it for another Cryptocurrency, or use it to purchase something, a taxable event occurs. You will need to subtract the fair market value of the cryptocurrency at the time of purchase from the selling price or the value of whatever you traded it for to calculate the capital gains.
In terms of the IRS, the rate at which capital gains on cryptocurrency will be taxed will depend on how long you have held the cryptocurrency. If you owned the cryptocurrency for less than a year before selling it, the gains would be taxed at a rate equal to your income tax rate. If you held the cryptocurrency for a year or longer, the gains would be subject to a rate of up to 20 percent, depending on your income bracket. Losses can be written off on your returns up to $3,000. Note that separate rules may apply if, for example, you were paid for a service in cryptocurrency. You should always consult with an experienced tax attorney like those at the Tax Law Offices of David W. Klasing before filing any return so we can assess the particulars of your situation.
How Can A Skilled California Cryptocurrency Tax Attorney and CPA Assist Me with Matters Related to Virtual Currency?
As noted earlier, our skilled tax professionals at the Tax Law Offices of David W. Klasing offer the unique perspective of being both licensed attorneys and certified public accountants. Our CPA training can help us to reconstruct past records and to set up a system for you to record the detailed information required on your tax return regarding the buying and selling of virtual currencies, including the aforementioned need to keep track of the fair market value of the cryptocurrency on the date you purchased it. We can use these records to help calculate your capital gains and losses for the year from the buying, selling, and trading of cryptocurrency, and to assist you in filling out your returns in a complete and timely manner. Our legal background will give us the skills needed to be sure nothing we do exposes you to civil fines or criminal liability.
As skilled and experienced tax lawyers, we can also assist you if you have failed to report capital gains from cryptocurrency on past returns and are facing the potential of an audit or criminal investigation by the IRS. Typically, if you retain us before an audit begins, we will be able to get you back into compliance with minimal penalties imposes. If the audit has already started, we will represent you with the IRS and work to get you back into compliance, potentially through voluntary disclosure, without you having to face the most severe civil or criminal penalties.
