Until recently, the IRS required taxpayers to answer yes to the question "Does the IRS know if you have cryptocurrency?" unless they made a purchase. But the IRS recently clarified that you don't have to answer yes if you purchased crypto, as long as the gain is taxable, regardless of whether you received a 1099 from a broker. Thus, the question on your 2021 tax return should relate to your actual tax reporting obligation.
Tax implications of accepting cryptocurrency
If you're thinking about accepting cryptocurrency payments, you need to be aware of the tax implications. Businesses will need to report the payments to the IRS, and must keep complete records of the transactions. Additionally, companies may be able to deduct the costs of accepting cryptocurrency as a business expense. Understanding the tax implications of accepting cryptocurrency payments is important, as the IRS has a goal of raising $700 billion over the next ten years.
The tax implications of accepting cryptocurrency vary depending on your business model. The first thing to consider is the value of the cryptocurrency you accept. Although cryptocurrency is not considered legal tender, it is still considered property. Businesses should keep detailed records of each transaction to avoid double taxation.
Reporting to the IRS
While the world of cryptocurrency is still in its infancy, the US tax authorities are taking a closer look at the asset class. Specifically, the IRS is trying to determine how cryptocurrency and other digital assets should be reported. To that end, the IRS issued subpoenas to several exchanges to collect records of cryptocurrency transactions. In one instance, Coinbase was ordered to release records of 13,000 user accounts, including taxpayer identification numbers, names, birth dates, addresses, and transaction logs.
Cryptocurrency trading is a complicated process, but you can find ways to avoid getting into trouble by following a few basic steps. First of all, you should understand what you should not report. In many cases, your cryptocurrency activity is not taxable, but you still need to report it. This means that you need to file Form 1040 if you are earning any income from crypto.
