What happens if you don’t file crypto taxes?

Have you ever wondered what happens if you don’t file your crypto taxes? Well, there are consequences to misreporting or completely under-reporting your taxes on taxable transactions, including cryptocurrencies.

Today, we cover what happens if you don’t file crypto taxes, explain the current landscape of tax rules and reporting requirements, including clarifying frequently asked questions about crypto tax reporting.

Do I have to file taxes on cryptocurrency?

Yes. You must report your gains/losses from cryptocurrency trading and any income you earn from cryptocurrency related activities, along with answering the “crypto question” at the top of the first page of your Form 1040.

How do taxes on cryptocurrency work?

In the US, if you are trading cryptocurrency, you will have a taxable event, which is subject to capital gains taxes. These taxable events include any crypto-to-crypto trading, crypto-to-FIAT, crypto-swaps on decentralized exchanges, etc. Any sale of cryptocurrencies will lead to a capital gains scenario. In addition, when you spend your cryptocurrency to pay for goods/services, you will also be subject to capital gains taxes.

Other crypto activities such as receiving a hard fork, airdrop, crypto interest, bonus rewards, new coins through yield farming, or your salary in cryptocurrency will be treated as income. These items will be subject to ordinary income taxes rather than capital gains taxes.

How do I report income from cryptocurrency?

You need to report the fair market value (in USD) of cryptocurrencies that you have received in activities such as airdrops, crypto interest, accrued bonuses, crypto pay or return farming at the time you receive your income tax return.

If you trade cryptocurrency, you will have to determine the profit/loss on each trade and report it on Form 8949 and Schedule D of your tax return. If you eventually have a profit, you will likely have to pay capital gains taxes in the United States.

Find out more about how to report crypto taxes.

What happens if you don’t file taxes on cryptocurrency?

If you don’t file crypto for taxes, you’ll likely be audited, get a letter from the IRS with taxes owed, need to pay interest and a fine, or in more serious cases, you’ll face legal action.

In the US, you have reporting obligations in relation to cryptocurrencies, and if you do not comply, you will have to face the same legal consequences as if you had wrongly reported or failed to file taxes in general.

Should you report cryptocurrency if you are not selling it?

In short, no. If you only buy the cryptocurrency with US dollars and hold it without selling it, you do not have to report any capital gains or income. However, you must still answer the “crypto question” on IRS Form 1040. If you only bought cryptocurrency and did not sell it, you can answer “no,” due to the changes made to the 2021 form.

Anytime you receive compensation in cryptocurrency, you need to report the income as mentioned above, and any time you sell cryptocurrency, you need to determine and report the profit/loss on the trade.

Can the IRS track cryptocurrency?

Yes. The IRS has many methods and tools for tracking cryptocurrency activity.

Recently, thousands of crypto investors have received letters with amounts owed on taxes related to crypto activities because the IRS has the ability to track crypto. If you receive one of these messages, a crypto tax CPA can help you get right into how much you really need to pay and ensure that you are in compliance from that moment on.

Does Coinbase Report to the IRS?

Coinbase has been issuing Form 1099-K to some of its customers over the past few years, and will continue to issue 1099. U.S. cryptocurrency exchanges like Coinbase can be forced to pass user data to the IRS as in the past due to anti-money laundering initiatives and to track taxpayers who do not They file their taxes on cryptocurrencies.

Do all cryptocurrency exchanges report to the IRS?

An exchange in the United States may be obligated to transfer information about users to government entities, including the IRS. Under the recently passed new law, it appears that all US-based exchanges will need to issue some type of tax report to their clients and the IRS.

Do I Pay Taxes on Cryptocurrency If I Lose My Money?

Perhaps if you trade cryptocurrency and make a profit but then do more trading and incur losses, you still have to pay capital gains taxes on the trade you made a profit on. Let’s see an example.

I bought 1 bitcoin at the price of 10 thousand dollars. You will later sell that bitcoin for $20,000. Subsequently, she buys 1 Bitcoin again at 22 thousand dollars, then drops sharply, and sells it at 15 thousand dollars.

On the first trade, you had a profit of $10,000, which resulted in capital gains taxes. The tax rate will depend on your retention period. If Bitcoin trades at $20,000 after 12 months of holding it, you will have a long-term capital gains tax rate, ranging from 0% to 20%. If you hold it for less than 12 months, you will have a short-term capital gains tax rate, ranging from 10% to 37%.

On the second trade, I lost $7 thousand. Since you made a profit before, you can make up for this loss from the $10,000 profit you made before. If these are the only trades you’ve made during the tax year, the capital gains will only be $3,000 instead of $10,000, but you’ll still have to pay taxes even though you run a loss as well.

Can you write off stolen cryptocurrency?

In the United States, you will not be able to claim a loss for stolen cryptocurrency. According to the current tax law, stolen cryptocurrency is considered a personal loss for injuries, which are no longer tax deductible. Learn more about taxes on stolen, hacked or lost cryptocurrency.

Learn how to generate tax reports with CoinTracking:

Best Crypto Tax Calculator: CoinTracking

The best crypto tax software to import and track your trades is CoinTracking.

You can import your trades using our CSV or API imports from hundreds of other exchanges, track your gains/losses, and generate tax reports according to your preferred method of accounting.

CoinTracking is the complete crypto tax solution for:

Crypto Taxes With No Errors: A Complete US Coin Tracking Service.

CoinTracking also offers a full service for US cryptocurrency traders. A crypto settlement tax expert from Polygon Advisory Group, a leading US tax firm, will review your CoinTracking account, help fix any errors, and ensure your crypto tax reports are submitted flawlessly.

Do you have any questions about crypto taxes? Check out the best guides:

  1. Do you pay taxes when trading stablecoins?

  2. How is yield farming taxed?

  3. DeFi Taxes: The Complete Guide.

  4. How to save taxes with a Bitcoin IRA.

  5. Do you pay taxes to receive bitcoin tips?

  6. Uniswap . Tax Guide

  7. Is cipher wrap taxable?

  8. How do you calculate taxes at the average dollar cost of bitcoin?

  9. Do you pay taxes on stolen, hacked or lost cryptocurrency?

  10. FIFO for Crypto Taxes? The implications of accounting methods.

  11. NFT Taxes: The Complete Guide.

  12. NFT Guide 2021 (with taxes).

  13. Is bitcoin taxable? The Ultimate Guide to Taxes for 2021.

  14. Do You Pay Taxes on Bitcoin Debit Card Purchases?

  15. The most tax-friendly countries for cryptocurrency.

  16. How do you reduce your crypto taxes?

  17. Crypto tax loss harvest: Here’s what you need to know

Disclaimer: All information provided above is for informational purposes only and should not be considered professional, legal or tax advice. You should do your own research or consult with a professional financial advisor when investing.

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