- December 14, 2022
- Posted by: Gavtax gavtax
- Category: SMALL BUSINESS TAXES
The following info is for those who hit more than $10,000 in Crypto and other digital asset transactions in 2022.
The IRS is coming after you!
As part of the $80b funding, anyone dealing in crypto and making more than $10k in transactions and not reporting them to the IRS, you are one of the 5 groups to be targeted beginning this year. (Mentioned those five target groups in one of my earlier newsletters).
Beginning 2024, certain taxpayers who received more than $10,000 in digital assets a year are required to tell the IRS who sent them.
You as a recipient must report the following:
- Sender’s name,
- Address and their
- Social Security number
Q. What are the consequences of non-reporting?
There are civil penalties of $3million for those who accidentally overlook the requirement.
Those who intentionally disregard the requirement can be charged with a felony and face up to five years in prison and higher civil penalties.
Corporate violators face fines of up to $100,000 per transaction.
A word of caution: Your wealth/financial advisor might be unaware of the new requirement and its potential impact on clients.
And so might be several small business owners that take payment in Bitcoin, Ethereum or other digital currencies, or who trade crypto assets frequently.
As a user, you would be the best person to know if you dealt with digital asset transaction/s.
Q. Post new mandates, what happened to Bitcoin etc.?
Owing to tighter regulations by the IRS, Bitcoin has lost 2/3rds of its value since a record high of nearly $69,000 last November, its worst time since 2011. Two stable coins pegged to the U.S. dollar, TerraUSD and Luna, collapsed in May. Last month, a hedge fund invested in cryptocurrencies, Three Arrows Capital, went bankrupt. Some exchanges have halted trading and withdrawals.
Having said all that, usage of digital currencies will continue to gain traction…1 in every 5 businesses will offer digital payment options this year.
Q. Why is the IRS hell bent on chasing crypto owners?
The IRS is worried that cryptocurrencies can be used for tax fraud and other criminal activities like money laundering, drug trafficking and ransomware. It’s also losing more than $50 billion a year from crypto traders not paying taxes on gains.
The new law requires brokerages like Fidelity Investments, Vanguard and Robinhood that transfer digital assets to investors to send to its customers and the IRS an annual form detailing a client’s digital transactions for federal tax returns that will be filed in 2024.
The question though remains whether many investors will receive inaccurate forms because crypto exchanges don’t typically track the original price at which a customer buys a digital asset.
Bottom line: Some of the investors have made fortunes. But winners or losers, they now must tell the IRS.
- IRS considers crypto to be taxable property like a stock or bond.
- Non fungible tokens (NFTs) are also included under the new reporting law.
- The digital assets reporting law is an extension of the disclosure of all cash transactions made or received via PayPal, Venmo, Zelle etc. Also extended to all cash intensive businesses such as gig workers, freelancers, contractors, and small businesses such as restaurants…