Bitcoin is a popular form of virtual currency, which is also referred to as “digital currency” or “cryptocurrency,” first used to conduct financial transactions in 2010. Unlike conventional currencies, Bitcoin is unregulated by a central authority, while quasi-anonymous “wallets,” or programs where Bitcoins are stored, create a second layer of privacy for users.
Because of this emphasis on privacy and anonymity, which is one of the key features attracting taxpayers to cryptocurrency, many Bitcoin users avoid reporting their financial transactions to the Internal Revenue Service (IRS).
However, sophisticated software allows the IRS and other regulatory agencies to track and analyze transactions recorded in the Bitcoin “blockchain,” which functions like a public ledger.
As a result, it is increasingly easy for IRS agents to identify individuals who attempt to avoid filing taxes, paying taxes, or meeting other tax requirements for Bitcoin and similar digital currencies.
This can lead to substantial penalties, which the skilled North Carolina Bitcoin CPAs of Mildrid Esua, CPA, PLLC can help you avoid or lessen.
Digital, virtual, and cryptocurrencies are treated as property. You may need to pay capital gains taxes (Schedule 1) on any cryptocurrencies that you used to:
Trade or sell cryptocurrency to fiat currency such as the US Dollar, Euro, Yen, etc.
Trade one cryptocurrency for another cryptocurrency
Use cryptocurrency to purchase goods or services
Receive payment of cryptocurrency for services that you performed
Receive digital / cryptocurrency resulting from a fork and/or airdrop
These rules apply to all digital and cryptocurrencies including Bitcoin (BTC), Ethereum (ETH), Litecoin (TLC), Dash (DASH), Ripple (XRP), Bitcoin Cash (BCH), etc. You may also be required to file an FBAR and possibly IRS Form 8938 and report all of the digital and cryptocurrencies that you currently own. And, if you don’t report your virtual transactions properly, the IRS may go after you for penalties and interest and, in some cases you may even face criminal prosecution.
Cryptocurrency Tax Services
Reporting digital currency on your tax returns is not simple but our CPA firm will guide you through this process and get you up to date on your crypto tax filings. Call us now at 336-825-7994 to learn more request your free consultation through our website.