Cryptocurrency Conclusion: How the Exchanges Report Crypto for Taxation
During the last article in our cryptocurrency series, we will focus on how to address your cryptocurrency gains and losses and the potential tax liabilities it may bring. We will also discuss the various ways the crypto exchanges report your transactions to the IRS and other agencies.
As cryptocurrency exchange platforms offer a means to buy, sell, and trade these new assets, the ways they record and report the transactions to regulatory agencies such as the IRS will differ. A common method used by traditional brokerages is to generate 1099-B forms to report overall gains or losses; other platforms send out 1099-K forms to the customers who have had over 200 transactions and $20,000 gross volume in any given year; for the additional rewards and fees, Coinbase reports on 1099-MISC forms. While the same information is relayed by the cryptocurrency exchanges, they can stem from different transactions from the different types of cryptocurrencies.
It is a breeze when the platform does the work for you of calculating the cost basis and gains on your transactions, but sometimes the platforms leave you out in the storm. Oftentimes, your entire log of transactions, including buying, selling, and transferring different cryptocurrencies, are simply submitted in an excel sheet, saved as a comma-separated values file. When the file is opened in excel, it includes extensive information for every individual transaction for your account, recorded chronologically, but without including the overall profit or loss. From this point, you can break out your trusty abacus or calculator of your choice and start calculating how much was gained or lost, from the start, moving down each transaction, while also taking into consideration the different cryptocurrencies, their fluctuating prices, the fractional amounts, and transfers and withdrawals. It can be overwhelming and is one of the reasons there is now and will be a great deal of tax debt generated from crypto transactions.
To demonstrate with a real-world example, in a recent case here at J. David Tax Law where the platform reported only the total amount the customer had generated in their account. This amounted to a staggering tax debt owed that wouldn’t have accounted for cost basis or losses, which means the tax liability would have been taken straight from the astronomical figure of all transactions. If that amount was sent to the IRS or other regulatory agencies, they would not have had any context to begin to determine an accurate tax liability. After our thorough review, the client had a loss and a tax refund due. That’s why it is so important to use the cost basis calculator and work through the transactions. With no uniform method across the board, it is tough to know what you’re getting into. With luck, J. David Tax Law has seen this scenario before and we will work through it so that no stone is left unturned, with accuracy for your tax liability.
Cryptocurrency Tax Attorney Representation in Orlando, FL
At J. David Tax Law, our tax attorneys in Orlando, FL are experts in the taxation of cryptocurrency and the fallout from not paying taxes on cryptocurrency gains.
Over the last eighteen months, our firm has represented more than 612 individuals being pursued by the IRS for cryptocurrency violations of the tax code. People often get a false sense of security that the IRS cannot locate the taxable income from crypto transactions; don’t give in to it. This article demonstrates exactly how the IRS gets your information from the exchanges. Ten of thousands of people are being pursued by the IRS for taxes they owe on cryptocurrency trading and it has just started.
If the IRS contacts you about a cryptocurrency tax debt, call the experts at J. David Tax Law in Orlando, FL for a no-cost consultation and immediate representation. It is vital to act quickly in these circumstances.
He is the founder and Managing Partner of J. David Tax LawSM. 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.