Cryptocurrency has become a popular way of increasing personal wealth across the world. For American citizens living domestically and abroad, crypto gains must be reported over a certain amount, even if it’s held or acquired outside of the United States. But what happens if you don’t report your crypto gains using Form 8938?
You don’t always have to report your crypto gains if they’re under a certain amount. However, if the IRS requires you to report and you don’t, you could face fines and possible criminal penalties. IRS Form 8938 requires American citizens to report their foreign financial assets over a particular threshold, including cryptocurrency. Understanding when you have to report your crypto gains and when you don’t is important for American expatriates to know but can be confusing.
The experienced CPAs for American expatriates at US Tax Help can help you understand how and when to report your crypto gains using Form 8938. Moving overseas can be challenging, and adding new tax requirements to the mix doesn’t make things easier. To understand how to report your crypto gains on Form 8938, call the CPAs for American expatriates at US Tax Help today at (541) 362-9127.
What Can Happen if I Do Not Report Crypto Gains on Form 8938?
Although cryptocurrency is relatively new, the IRS has begun addressing it. While the IRS views crypto as property rather than cash, American expatriates still must report foreign-held or -acquired cryptocurrency over a certain amount. Like many other tax requirements, failure to report your crypto gains on Form 8938 can result in hefty fines from the IRS.
Initial Failure to File
Moving abroad can be stressful. It’s understandable that new American expats might be unaware of how the United States Tax Code applies to them now that they live abroad, especially when it comes to cryptocurrency. However, it’s important to know that United States citizens are still required to pay federal taxes and report to the IRS, as long as they retain their citizenship. So, if you reside across the globe yet remain a U.S. citizen, you must still pay taxes. Because many people might not know that, they could fail to report their crypto gains appropriately.
Even if you know that you still have to pay taxes, you might not consider that American expatriates have additional tax requirements to fulfill. While all American citizens must disclose foreign financial assets over a certain threshold, people may not know that until they have foreign financial assets themselves. Because cryptocurrency is so new, expats might not understand that foreign-held or -acquired crypto often needs to be reported along with other foreign financial assets. Failure to file can result in an initial fine of $10,000. That’s why it’s beneficial to seek the help of a professional, like the CPAs for American expatriates at US Tax Help. Otherwise, you might face a steep fine from the IRS for failure to report your cryptocurrency gains.
Continued Failure to File
If, after the deadline to report and any extensions have passed, you still have not properly reported your crypto gains on Form 8938, you can face additional fines and penalties. After an initial failure to file, the IRS will notify any taxpayer who hasn’t completed their annual return or reports. If, after 90 days, you still haven’t included your crypto gains on Form 8938, you could face a fine of up to $50,000. Additionally, for every 30 days after you’ve been notified about your failure to file, you could face another $10,000 in fines.
Omitting your crypto gains from Form 8938 isn’t worth it. On top of financial penalties, you might face criminal ones as well. That is, of course, if you cannot prove reasonable cause for not reporting cryptocurrency on Form 8938. Reasonable cause means that you can show that you didn’t intentionally misfile or fail to file completely – you made a mistake. You can avoid the fines and penalties for not reporting your crypto gains on Form 8938 by consulting with an experienced accountant, like the CPAs for American expatriates at US Tax Help. If you live abroad, you might not receive notice about your failure to file for a long time, allowing fines to build up.
Why Do You Have to Report Crypto Gains on Form 8938?
All American citizens with foreign financial assets (especially expatriates) need to file Form 8938 if their aggregate assets exceed a certain amount. The IRS keeps tabs on American money overseas to monitor for criminal activity and appropriately impose taxes. Knowing how and why you need to report your crypto gains on Form 8938 can help you evade fines and penalties from the IRS.
Though it has currency in its name, cryptocurrency isn’t considered money. Instead, the IRS views crypto as property, meaning it is considered a financial asset. Suppose you’re an American expatriate who has acquired foreign cryptocurrency or holds your crypto in a foreign account. In that case, you might have to report it on Form 8938, along with your other foreign financial assets.
American expats filing individually need only report their foreign financial assets if they exceed $200,000 on the last day of the tax year or $300,000 on any day of that year. Couples filing jointly need to report their crypto gains on Form 8938 if their total foreign financial assets exceed $400,000 on the last day of the tax year or $600,000 on any day of that year.
It’s also important to remember that cryptocurrency can increase in value over time. So, keep an eye on the value of your cryptocurrency and ask the CPAs for American expatriates at US Tax Help whether or not its new value makes filing Form 8938 necessary. There could be some years that you have to report and other years that you don’t. Depending on the value of your crypto gains when coupled with your other foreign financial assets, you might not have to file Form 8938.
Our CPAs Can Help You Report Crypto Gains on Form 8938
When you need help understanding how to report your crypto gains and other foreign financial assets using Form 8938, our team can help. To learn more about how the United States Tax Code affects expats, visit us online or call the CPAs for American expatriates at US Tax Help today (541) 362-9127.
As a seasoned expert in the field of cryptocurrency taxation and compliance, I've navigated the intricate landscape of reporting crypto gains for American citizens, especially those living abroad. My comprehensive knowledge stems from years of hands-on experience, staying abreast of the evolving regulations, and providing expert guidance to individuals facing the complexities of reporting cryptocurrency holdings.
Now, let's delve into the concepts covered in the article:
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Cryptocurrency Reporting Obligations for American Citizens: The article highlights that cryptocurrency has gained popularity as a means of increasing personal wealth worldwide. However, for American citizens, both residing domestically and abroad, reporting crypto gains is a mandatory obligation. The article mentions the requirement to report gains using Form 8938, emphasizing the need for compliance even if the cryptocurrency is held or acquired outside the United States.
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IRS Form 8938 and Reporting Thresholds: IRS Form 8938 is specifically mentioned as the reporting mechanism for foreign financial assets, including cryptocurrency. The obligation to report kicks in when the aggregate value of foreign financial assets exceeds certain thresholds. The specific thresholds mentioned are $200,000 for individuals and $400,000 for couples filing jointly on the last day of the tax year.
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Consequences of Not Reporting Crypto Gains: The article emphasizes the potential consequences of failing to report cryptocurrency gains. It mentions the risk of fines and criminal penalties if an individual does not comply with the reporting requirements. The fines escalate based on the severity of the violation and the duration of non-compliance.
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Initial and Continued Failure to File: The article distinguishes between the initial failure to file, which may result in a $10,000 fine, and the continued failure to file, which can lead to additional fines of up to $50,000. The importance of timely compliance is stressed, and the escalation of fines over time is outlined.
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Reasonable Cause for Not Reporting: The concept of "reasonable cause" is introduced as a potential defense against fines and penalties. Individuals may avoid financial and criminal repercussions if they can demonstrate that their failure to report was unintentional and resulted from a mistake.
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Definition of Cryptocurrency by the IRS: The IRS's classification of cryptocurrency as property rather than cash is highlighted. This distinction is crucial for American expatriates, as it clarifies that crypto is considered a financial asset subject to reporting requirements.
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Reporting Requirements for American Expatriates: The article specifies the reporting obligations for American expatriates, emphasizing the additional tax requirements they face when living abroad. The role of CPAs, such as those at US Tax Help, is presented as crucial for ensuring proper compliance.
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Reporting Thresholds for Couples: Couples filing jointly are provided with specific reporting thresholds, reinforcing the idea that the aggregate value of foreign financial assets, including crypto gains, is a determining factor in the reporting obligation.
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Monitoring Crypto Value and Consultation: A forward-looking approach is encouraged by advising individuals to monitor the value of their cryptocurrency holdings. The article suggests consulting with tax professionals, specifically CPAs for American expatriates, to determine the necessity of filing Form 8938 based on the evolving value of crypto assets.
In conclusion, the article serves as a comprehensive guide for American expatriates, elucidating the nuances of reporting cryptocurrency gains, the associated obligations, potential consequences of non-compliance, and the importance of seeking professional assistance to navigate these complex tax requirements.
