LONDON, United Kingdom – With the tax deadline slated April 17th, the US Internal Revenue Service (IRS) officially announced that taxpayers profiting from cryptocurrency transactions must report all income derived from these earnings.
IRS released this reminder reiterating IRS Notice 2014-21, the guideline that states that virtual currency transactions are treated as property or capital gains and are therefore taxable by law. Taxpayers who fail to report these transactions shall be audited and deemed liable for legal penalties and interests. The organization further warned that any taxpayer who fails to report cryptocurrency earnings shall be criminally charged with fraudulent filing of tax return and/or tax evasion. If convicted, the maximum prison term for tax evasion is 5 years with a maximum fine of $250,000, while the maximum prison term for filing of fraudulent tax returns is 3 years with a maximum fine of $ 250,000.
As defined, virtual currency represents a digital value which generally functions in a similar manner as that of the traditional currency. Cryptocurrency transactions are hard to trace due to its nature. Hence, some taxpayers may be motivated to conceal their taxable income.
The IRS’s taxation rules on cryptocurrency have left many traders wanting to resort to other methods in an effort to escape obligations. For instance, Bitcoin users are entertaining the idea of converting to Monero which is more difficult to trace. Speculations as to the use of tracking software to isolate guilty taxpayers are rising. Moreover, there are also rumors that IRS will implement a blockchain technology to detect these possible tax evaders.
As reported in the New York Times, many cryptocurrency traders feel overly confused with the accounting process for transactions made in the previous year. IT Consultant Mike Schreibman stated that the IRS 2014 guidelines are complicated. Lawyer/cryptocurrency trader Jeanne Lowdermilk further expressed that despite the updates, not a soul knows what the future will bring.
People are shocked upon the discovery of how much they owe the government with cryptocurrency transactions. Most cryptocurrency investors are too young and lack the experience in the virtual trading world. For situations like this, many are seeking help with tax advice.