Cryptocurrency Conclusion: How Crypto Gets Reported for Taxation by the Exchanges
This last article in our series on cryptocurrency focuses on how to address cryptocurrency gains and losses and the potential tax liabilities it may bring. We also cover the various ways your transactions are reported by the crypto exchanges to the IRS and other agencies.
As more cryptocurrency exchange platforms offer a means to buy, sell, and trade these new assets, they have different ways of recording and reporting the transactions to regulatory agencies such as the IRS. Traditional brokerages use the most common method which is generating 1099-B forms that report overall gains or losses; other platforms prefer to send out 1099-K forms to the customers with over 200 transactions and $20,000 gross volume in any given year; Coinbase reports additional rewards and fees on 1099-MISC forms. While the crypto exchanges all relay the same information, the different transactions can stem from different types of cryptocurrencies.
Reporting is a breeze when the platform has done the work of calculating the cost basis and gains on your transactions, but often the platforms will leave you out in the storm. Sometimes, your entire log of transactions, which includes buying, selling, and transferring different cryptocurrencies, are simply provided in an excel sheet, saved as a comma-separated values file. When this file is opened in excel, it entails extensive information recorded chronologically for each individual transaction for your account, but without having the overall profit or loss. With this data, moving down each transaction, you can break out the trusty abacus or calculator of your choice and start calculating how much you gained, or lost, from the starting position, while also being mindful of the different cryptocurrencies, the fluctuating prices, the fractional amounts, and your transfers and withdrawals. It can take a lot of effort and is one of the reasons that there is and will be a significant amount of tax debt generated from crypto transactions.
For a real-world example, a recent case here at J. David Tax Law involved a customer where the platform only reported the total amount generated in their account, which created a staggering tax debt owed that didn’t account for cost basis or losses, meaning the tax liability was taken straight from that astronomical figure of all transactions. If the IRS or other regulatory agencies had received that amount, they would not have had the appropriate context to determine an accurate tax liability. After a detailed review, the client actually had a loss and a tax refund due. That’s why it’s vital to use the cost basis calculator and work through the transactions. Since there are no uniform methods across the board, it can be tough to know what you’re getting into. Fortunately, J. David Tax Law has seen this type of scenario before. We will work through it with our clients so that no stone is left unturned, with accuracy for your tax liability.
Cryptocurrency Tax Attorney Representation in Jacksonville, FL
At J. David Tax Law, our tax attorneys in Jacksonville, FL are experts in the taxation of cryptocurrency and the respective fallout from unpaid taxes on cryptocurrency gains.
In the last eighteen months, we have represented more than 612 individuals who were being pursued by the IRS for cryptocurrency violations of the tax code. Do not allow yourself to get a false sense of security that the IRS cannot locate the taxable income from your crypto transactions. This article outlines exactly how the IRS receives the information from the exchanges. Currently, the IRS is pursuing tens of thousands of people owing taxes from cryptocurrency trading and it is just the beginning.
If the IRS has contacted you about a cryptocurrency tax debt, contact the experts at J. David Tax Law in Jacksonville, FL for a no-cost consultation and immediate representation. It is imperative that you act quickly in these circumstances.
He is the founder and Managing Partner of J. David Tax Law®. He is the winner of the 2019 Ultimate Tax Attorney awarded by the Jacksonville Business Journal. This award recognizes law firms and attorneys who show exemplary professional talent and skill while demonstrating superior client care, leadership, charitable concern, and civic engagement. Jonathan graduated from Chapman University School of Law. He has practiced law since 2011.
We provide tax solutions for our clients who have IRS and state tax debts, unfiled returns, audits, etc. We advise you on future compliance that enables your individual or business tax problems to be behind you for good.
7077 Bonneval Rd Suite 200, Jacksonville, FL 32216