What happens if you don't report cryptocurrency on taxes
Failing to report your cryptocurrency activity on your taxes can have serious consequences, including:
Penalties and fines: The IRS considers cryptocurrency as property for tax purposes, and any gains or losses from buying, selling, or trading crypto need to be reported. Failing to do so can result in significant penalties and fines. The penalty for underreporting your income, including cryptocurrency, can be up to 25% of the unreported amount. Additionally, you may face failure-to-file penalties and interest charges on the unpaid taxes.
Audit: The IRS is increasingly focusing on cryptocurrency and has the resources to track down individuals who haven't reported their crypto activity. If the IRS discovers unreported income, you could be subject to an audit, which can be a lengthy and stressful process.
Criminal charges: In severe cases, especially if there's evidence of intentional tax evasion, you could face criminal charges, which can lead to jail time and significant fines.
Here are some additional things to keep in mind:
Even if you don't sell your cryptocurrency, you may still have a taxable event if you receive it through mining, staking, or airdrops.
You can report your cryptocurrency activity using Form 8949 and Schedule D of your tax return.
There are specific rules for calculating capital gains and losses on cryptocurrency transactions.
If you haven't reported your cryptocurrency in the past, you can file amended tax returns to avoid further penalties.
It's important to consult with a tax professional who is familiar with cryptocurrency taxation to ensure you are compliant with IRS regulations and avoid any potential penalties. They can guide you through the filing process and help you understand your specific tax obligations related to cryptocurrency.
Remember, ignorance of the law is not an excuse, and failing to report your cryptocurrency activity can have significant financial and legal repercussions. It's always best to be proactive and ensure you are compliant with tax regulations.
