Guide to Federal Tax Compliance for Cryptocurrency Investors

Cryptocurrency investors are facing enhanced scrutiny from the Internal Revenue Service (IRS) in 2021. As a result, it is more important than ever for investors to ensure that they are complying with the Internal Revenue Code and other pertinent federal laws. We have published several resources for cryptocurrency investors prepared by New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group. If you have questions about federal tax compliance related to cryptocurrency, these resources are your starting point for what you need to know:

Understanding Your Obligations to the IRS

While the IRS’ guidance regarding cryptocurrency tax compliance has been less than clear in recent years, this is not an excuse for investors to report or pay less than they owe. If you have gains from investing in cryptocurrency, then you owe reporting obligations to the IRS. For an overview of how to calculate taxable gains on cryptocurrency investments, you can read: Cryptocurrency and Federal Taxes: What are Your Obligations to the IRS?

What To Do Before (or After) Tax Day

When it is time to file, cryptocurrency investors need to have all of the information that is required in order to accurately report their federal income tax liability. However, this can prove to be very challenging—particularly for investors who regularly buy and sell multiple cryptocurrencies.

While cryptocurrency investors (like all taxpayers) should prepare in advance so that they can timely file on or before April 15, they must not simply ignore their obligations if they run into issues when attempting to complete their returns. Learn more: Tax Day Presents Unique Challenges for Cryptocurrency Investors in New Jersey.

Dealing with Past Cryptocurrency Tax Filing Errors

If you know that you have failed to report taxable income from cryptocurrency transactions prior to 2021, you need to deal with your situation proactively. Waiting until the IRS uncovers your mistake can significantly increase the costs of your mistake. Mr. Thorn covered the options that are available to cryptocurrency investors who are behind on their returns in: Have You Underreported Your Cryptocurrency Taxes to the IRS?

Reporting Offshore Cryptocurrency Assets

If you own cryptocurrency assets offshore, you likely have filing obligations beyond submitting your annual income tax returns. You may be required to comply with the Bank Secrecy Act (BSA), Foreign Account Tax Compliance Act (FATCA) or both, and failure to comply could lead to civil or criminal penalties. Learn more: What are the FBAR and FATCA Filing Requirements for Offshore Cryptocurrency?

Understanding How the IRS Identifies Cryptocurrency Investors

When it comes to identifying cryptocurrency investors, the IRS has a number of tools at its disposal. As a cryptocurrency investor, you cannot assume that your holdings are shielded from view. The IRS is actively targeting cryptocurrency investors, and it is pursuing both civil and criminal charges against investors who fail to report their holdings on their returns. Learn how the IRS is targeting cryptocurrency investors in IRS Issues Another “John Doe” Summons to Identify Cryptocurrency Investors.

Get the Advice You Need from New Jersey Tax Attorney Kevin E. Thorn

Are you behind on your cryptocurrency tax filings? Do you have questions or concerns about what you should do now? To request a confidential consultation with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-355-8202, email ket@thornlawgroup.com or tell us how we can reach you online now.