The Internal Revenue Service of the United States of America has published a document in recent times serving as a reminder to the taxpayers in the US that their earnings based on cryptocurrencies have to be reported to them. The IRS has emphasized on the seriousness of the situation for those who will not be reporting their earnings on income tax returns.
Friendly Reminder by the IRS
As April 17th
, the tax deadline closes in, the IRS thought it pertinent to remind the taxpayers that they are liable to pay income taxes on their earnings from cryptocurrencies. The IRS has stated that just like traditional vehicles of exchange and trade, cryptocurrencies too are liable to the same kind of taxation. They represent value in a similar manner to that of traditional fiat currency but due to the fact that cryptocurrencies are difficult to keep a track of owing to their pseudonymous nature, many taxpayers will feel tempted to hide their income that can be taxed.
Tax Filing Service Reported only 0.04% Reported Cryptocurrency Earnings to IRS Last Year
From the 250,000 people who filed their tax returns using Credit Karma, a personal finance service, less than a 100 actually reported their cryptocurrency transactions to the IRS. This means that only 0.04 percent of the taxpayers who used the personal finance service reported their cryptocurrency earnings for 2017.
This can either be looked at as a failure to report their earnings due to the complexity of the tax situation when it comes to cryptocurrencies or simply just an attempt to hide their earnings from the IRS. Since 2014, the IRS has started to consider the trading, sale, purchase and mining of cryptocurrencies as being taxable events and it has provided the sufficient guidance for the taxation of these events.
Consequences for Those Who Hide Taxable Income
The IRS has made it a point to clearly state that the cryptocurrency earnings are considered to be reportable when it comes to income tax returns. Since trade done using cryptocurrencies means that cryptocurrencies behave as a source of value similar to that of the US Dollar, they are also taxable according to the rule of law just like any other privately owned property is in the US.
If the taxpayers do not manage to report their earnings from cryptocurrencies in a wholesome and accurate manner, they are going to be audited for their transactions and if the situation demands it, they will be likely to face consequences in the form of penalties.
The IRS also has gone on to say that if the situation is indeed dire, the taxpayers who have sought to hide their cryptocurrency earnings from the IRS can actually be subjected to proper criminal prosecution if they do not report their earnings. The charges that they could be prosecuted for can range from filing untruthful tax returns to even tax evasion.
These are serious charges and if convicted, offenders can face 3 to 5 years for each charge and a fine of $250,000 for each charge as well. It is a huge risk to take and even though tracing cryptocurrencies is difficult, it is not impossible. The threat of jail-time and fines is a serious one for all taxpayers to consider as 17th
April is just around the corner.