When the government comes across new technologies and ways of doing business, it often doesn’t know how to fit these new things into existing law. With Bitcoin and other cryptocurrencies, the government is still working to catch up. For now, crypto coins are treated as property – but their sale or transfer may still trigger profits. Profits like these mean taxes – and avoiding paying those taxes can mean serious criminal charges. While the government may not be sure how to handle some aspects of cryptocurrencies, they may still use tax evasion statutes to punish tax issues involving Bitcoin. If you have investments in Bitcoin, you mine coins, or you use coins in personal or business transactions, make sure to talk to a California cryptocurrency tax attorney at the NewPoint Law Group before any problems arise.
Do I Have to Pay Taxes on Bitcoin?
Currently, the IRS classifies digital currency as property. Rather than considering it literal currency like cash, they see it as property more akin to stocks or bonds. When you sell investments like stocks, bonds, or crypto coins, you are taxed on the profits you realize. Capital gains taxes often come in 0%, 15%, or 20% tax rates, depending on certain factors. This means that, in many cases, the profits from bitcoin investments may actually be taxed at a lower rate than your income taxes.
If you receive Bitcoin as part of a transaction, you may need to pay taxes on its current value. Some companies are taking full advantage of cryptocurrencies by paying contracts or even paying employees by giving them coins instead of (or in addition to) cash payments. Under the US tax code, anything you receive in exchange for your labor is considered income. Even if you receive property like a crypto coin, you need to pay taxes on its value at the time you receive it. This means that if you get paid in Bitcoin for a project, as a signing bonus, or as a year-end bonus, you may still need to pay taxes on its value at the time you receive it. From there, any gains or losses in its value should be considered capital gains/losses.
The laws concerning bitcoin are in constant flux, so it is vital to consult with a tax attorney when trying to understand your tax requirements. Following the IRS’ guidelines for paying taxes on cryptocurrency may protect you from problems down the line, but working with the guidance of a tax attorney can help predict and avoid specific issues you may face. Especially if your have a complex or complicated situation, it may require the advice of a tax attorney to determine what tax you owe because of your investments or mining activity with Bitcoin, Ethereum, Litecoin, Ripple, or other cryptocurrencies.
Avoiding Tax Audits for Cryptocurrency Transactions and Investments
The IRS has begun to treat cryptocurrency with intense scrutiny. Under the belief that people may use crypto coins to avoid taxes – much like Swiss Bank Accounts – the IRS may look closely at cryptocurrency investors and owners. In some cases, this could mean filing an IRS audit against you or even charging you with tax crimes.
In the US, the federal government has the power to write and enforce tax crimes. Because of this, failure to file, tax evasion, and tax fraud are all federal criminal offenses. Ultimately, you could end up facing over $100,000 in fines and spend at year or more in a federal prison. Risking this kind of penalty is never worth it. Discussing your tax obligations with an experienced Roseville tax attorney before filing may help you avoid serious consequences.
Audits do not always result in charges, but frequently uncover prior underpayments which lead to new tax penalties. If you failed to report income from Bitcoin sales, or income in the form of coins, an audit may uncover underpayment. Failing to pay some amount of your taxes is not always a crime, but still carries penalties.
An experienced audit defense attorney may be able to negotiate with the IRS on your behalf. Not only can we represent you during IRS investigations or hearings, but we may also be able to work toward an agreement with the IRS. This can often allow you to avoid tax penalties in exchange for cooperation and prompt repayment.
Bitcoin Tax Attorney in Roseville, CA
Talk to an attorney today if you are facing an audit from tax issues surrounding Bitcoin or other cryptocurrencies. There may be surprising tax requirements, especially if you invest in digital currency or get paid in Bitcoin. For a free consultation on your case, contact the Sacramento Bitcoin tax lawyers at The NewPoint Group today. Our number is 1-800-358-0305.