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- Crypto tax enforcement is now near, following which taxpayers are complying with the law
- Several are confused regarding crypto tax treatment, and finding ways to save some of their taxes
- While protecting some of their funds from tax, several rumours or myths have begun to spread in the cryptosphere
Crypto tax is inevitable, although both the terms have no match. The US Internal Revenue Service (IRS) has stricken its rules and made it clear that it will go after individuals that will not report to the authority. Moreover, the authority has called some of the major crypto exchanges including Coinbase, Kraken, Circle, and Poloniex to hunt the individuals taxpayers. To hunt and ask for compliance, the US tax authority has also posted 10k letters in different versions. However, it is yet to be cleared whether there will ever be any cryptocurrency amnesty program.
Hodlers are confused about crypto tax treatment
Cryptocurrency audits are being continued by the IRS. However, for now the individuals have at least tracking and tax return preparation alternatives that can make the scenario more convenient. Still, many of the investors are looking to minimize taxable cryptocurrency gains to defeat taxes where it is possible. And it is yet easy to get confused regarding the tax treatment and take tax positions that could be hard to defend. Hence, there are some crypto tax myths being spread among the taxpayers.
Some of the myths and reality
Taxpayers believe that they don’t owe any tax unless they receive Form 1099. However, even if the user or broker doesn’t file a Form 1099, he/she may still be owed. Notably, on Form 1099, there is no crypto tax that was previously and plenty of taxable income is not reported. Indeed, after being audited if a taxpayer opts not to reveal transactions, then that becomes weak.
Several believe that crypto in private wallets, instead of exchange platforms, are non-taxable. However, whether it is a private wallet or any exchange platform, the tax rules are indeed the same.
Many also believe that holding cryptocurrency indirectly, through trust or somewhere are through a trust or any other entity, then the taxpayers don’t owe any tax. Indeed, hodling cryptocurrency through any entity could keep the income off the client’s tax return. However, the factor is only possible if the entity qualifies as a tax exempt entity. As the trust could itself have tax reporting obligations and may owe taxes.
Many of the hodlers in the US have raised questions that a digital assets exchange is a type of trust. Hence, it is unfair to consider that a user owns the currency he buys. However, the IRS has not clarified anything related to the concerns. Still, it is highly unlikely that the tax authority will view cryptocurrency held through an exchange account as owned by the firm itself.
Several are yet to comply with the tax law
All of the payers of the crypto tax can plan their affairs and transactions to try and minimize their taxes. However, they should only consider theories that should sound too good to be true. Hence, staying careful in the future and doing some clean ups for the past is worth it. As the Internal Revenue Service has noted that several are yet to comply with the United States tax law.
