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New Tax Rules for Cryptocurrency Investment  

The IRS has issued new and expanded rules on cryptocurrency after sending 10,000 letters to taxpayers about penalties for failing to report.

Tip sheet on how to avoid penalties for improper reporting. 

The IRS has issued new guidelines on cryptocurrency and pledged "fair enforcement against those who don't follow the rules." Keeping detailed records of the fair market value of all receipts, sales and exchanges of virtual currency is critical for compliance with tax rules.

 

The IRS has issued new guidance for taxpayers who engage in virtual currency transactions. The information is presented at Frequently Asked Questions on Virtual Currency Transactions.

The FAQ expands upon the examples provided in IRS 2014 Notice on Virtual Currency (PDF).

The IRS also issued a new Ruling answering the question:

 

Does a taxpayer have gross income as a result of a hard fork or airdrop?

 

Revenue Ruling 2019-24 clarifies, with examples, when a taxpayer does and does not have gross income. Reporting requirements are set forth in detail in the 2014 Notice which established that virtual currency would be treated as property (a capital asset) for Federal income tax purposes, meaning capital gains rules apply (IRS Capital Gains and Losses).

Make certain you are in compliance to avoid penalties    

Unlike traditional investments you hold with a brokerage firm or bank, you generally will not receive a 1099 tax document (1099-k) for your cryptocurrency transactions as you do for dividends (1099-DIV) and interest (1099-INT).

So, even if you gave your accountant all your 1099 and other income documents you may have missed your cryptocurrency transactions.

If you fail to report you could be liable for tax, penalties and interest. 

In July 2019, the IRS began mailing educational letters to more than 10,000 taxpayers making clear that taxpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest.

Please check with the professional who prepares you income tax return, your tax specialist or accountant to ensure you have complied. 

Remember to keep detailed records of all receipts, sales, and exchanges of virtual currency, and the fair market value of each transaction. 

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