If you haven't filed US taxes you are not alone- in the 2015 filing year the IRS had only 800 people report cryptocurrency trading on their returns, and the summons for Coinbase alone names over 20,000 people the IRS is requesting documents for. It is only a matter of time until the examination letters come out, and if you get into compliance before getting audited you are in a much better position to avoid penalties. I will touch briefly on some of the reporting needed, and the basic types of options available here, then go into more detail on these in other blogs.
- Calculate Capital Gains
If you have traded in cryptocurrencies you should be reporting gains or losses on your tax return. You only report gains for sales, so if you have held forever then there is nothing to report. But if you buy and sell, each trade should be reported. This is tough to do in reality as the US dollar amount of the trade is not easily obtainable on many platforms. But do your best in reconstructing this using historical prices. This will go on Schedule D of your tax return and if held for over one year before selling you are taxed at lower rates.
- Determine any Self-Employment Income
If you have been blogging on Steemit or done other crypto activities where you received more than the equivalent of $400 USD in income, then you should report this as business income on Schedule C of your tax return.
- Prepare FBAR Reports
If at any point during the year you held over $10,000 total in your trading accounts or wallets (combined amount, not per wallet) then you need to file an FBAR report with the U.S. treasury department. I went into detail on this subject here: https://steemit.com/ustax/@cstranger/u-s-taxes-you-might-face-big-penalties-if-you-don-t-file-fbar-reports
- Prepare Form 8938
If your account balances were over $50,000 in any year, you may also need to include form 8938 to report your bank accounts directly in your tax return.
- Determine if any Amnesty Programs Apply
Most people who do not meet these requirements don't do so intentionally, they just don't understand what is required of them to be tax compliant. If you are willful and did this to hide money, then I would suggest obtaining a lawyer immediately and filing for the OVDP program, as this will keep you out of jail. But if non-willful then there are other, less expensive, options to become compliant:
Streamlined Procedure- If you live outside the US this is the best option, as it waives all penalties and stops the statute of limitations at three years of back tax returns. For US residents it is not as beneficial as you will still have to pay a 5% penalty on the balances of the highest year of FBAR reports, but if you have been trading more than three years with big gains this might be the best choice still to waive the tax return related penalties and stop the statute of limitations.
Delinquent FBAR/Informational Return Submission Procedures- This is a less formal method to catch up with all FBAR and 8938 requirements and protect yourself from penalties. However, this offers no protection from your individual returns so is best used for long-term hodl-ers and those who only traded small amounts.
Hope this helped. Feel free to ask questions below and follow me- I will follow back. Thank you and wishing you the best in your writing and trading lives!
Image copyright Fotolia, all rights reserved.