Internal Revenue Service Compels Americans to Declare their Cryptocurrency EarningsMarch 27, 2018
The tax collection of the United States, Internal Revenue Service compels all legal entities and citizens of the country to declare their cryptocurrency earnings and pay their crypto taxes. After several legal initiatives by different states to regulate any crypto activities, the agency issues a publication to all people in America to remind them of the mandatory disclosure of any of their profits using the virtual currency.
Virtual currency or digital currency, in a general definition, is a digital representation of value that works in the same way as the traditional currency of the country. Today, there are over one-thousand five-hundred known digital currencies available. Since transactions in cryptocurrencies can be hard to trace and have a pseudo-anonymous aspect, there are some taxpayers that may be tempted to hide their taxable income from the Internal Revenue Service.
Bitcoin profits are actually taxable in various places across the world. In the United States, virtual currency transactions are also taxable by law, just the same with other transactions in a property. This means that similar legal considerations are applied to cryptocurrencies just as they are to any tangible properties. The agency has already issued guidance to be used by taxpayers that addresses any transactions in digital currency.
The consequences for anyone who fails to declare or report their cryptocurrency income are serious. Those who don’t report the earnings of their digital currency transactions properly can be audited for such transactions. When appropriate, they can also be liable for interest and penalties. In more severe conditions, they could also become subject criminal prosecution due to failing to report the income tax consequences properly of digital currency transactions. Anyone who is convicted of filing false returns will be subject to a prison term of up to 3 years and must pay a fine of up to 250 thousand dollars.
In an official statement by the IRS, it has been noted that virtual currency is considered a property for the United States federal tax purposes. All the general tax principles applicable to property transactions also apply to transactions with the use of digital currency. The website has a list of transactions wherein taxpayers are required to report.
The criteria have already been implemented since 2014 in spite of the evolution in legal regulation and in the use and technological application. This has actually been extremely criticized by many cryptocurrency enthusiasts. However, despite their negative opinions, the agency is showing a rigid attitude with regards to the matter. The U.S. citizens are required by law to declare their transactions that bring them an inflow of either virtual or real money. In essence, all incomes that are taxable must be declared regardless of whether it’s received in crypto or FIAT. With this, taxpayers must be more vigilant in declaring their income or reporting their cryptocurrency income to the agency to avoid any grave consequences in the end.