Can You Pay Bitcoin Taxes Late in California?
Reporting and filing requirements for Bitcoin owners are already more complicated than normal tax filings. If you have started strategizing for your next filing, you may be wondering whether you can defer payment on taxes owed due to your asset holdings in Bitcoin or other cryptocurrencies.
You may seek an extension of your time to file your tax return (which covers Bitcoin and other cryptocurrencies) by filing Form 4868 with the IRS. However, the extension only covers how long you have to file the return, not how long you have to pay. If you owe the government taxes on your Bitcoin assets, you must work to pay them as soon as possible, because that balance accrues interest over time.
Protect your Bitcoin investments by utilizing the knowledge and resources that NewPoint Law Group has to offer. Our experienced California tax attorneys are here to answer any questions you may have about your tax liability. Schedule your first appointment with us today by calling 1-800-358-0305.
What Does a Cryptocurrency Tax Extension Do?
A tax extension provides a U.S. taxpayer with some additional time to file their required tax disclosure documents. There is no special form for a cryptocurrency tax extension – if you already have a tax extension, it also applies to your Bitcoin tax filings.
However, the extension does not change the date when you are required to pay the tax liability assessed to you for your Bitcoin income. You will still be required to pay your taxes by the ordinary deadline. If you miss the deadline for payment, you will owe interest and penalties regardless of your extension status.
What Happens If You Don’t Pay Bitcoin Taxes on Time in California?
Bitcoin investors traditionally choose to make quarterly payments on their realized gains from cryptocurrency transactions. If you don’t pay quarterly taxes, you will have to pay an underpayment penalty when filing your tax return in the following year. The underpayment penalty is calculated on IRS Form 2210. You can avoid this penalty if you owe less than $1,000 in tax after subtracting your withholdings and credits, or if you paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. This is called the “safe harbor rule.”
If you miss your payment deadline for federal income taxes on your Bitcoin assets and do not benefit from the safe harbor rule, the IRS can look to enact stiff penalties. The penalties continue to pile up over time, so ask one of our California Bitcoin tax attorneys how to rectify your situation as quickly and painlessly as possible.
Any unpaid balance that is passed due will be charged interest until paid. This applies even if you underpaid when you honestly believed that your tax liability was lower than it was. The interest begins to generate immediately.
If you pay less than 90% of what you owe by the deadline, the IRS may also enforce late payment penalties. These penalties may range from 0.5% to 25% of the monthly amount owed.
If you don’t owe any taxes on your Bitcoin, the IRS will obviously not penalize you for failing to pay. Similarly, if there is no outstanding balance on your account, you will not be penalized for failing to file. However, you still must file your return, or else you will not be able to obtain your tax refund until you file.
If you cannot pay your Bitcoin taxes, you should still file. The IRS offers payment plan agreements to taxpayers who find themselves unable to meet the burden of their tax liability. These plans are always better than taking your chances with substantial penalties and gathering interest.
Tips for Minimizing Your Bitcoin Tax Liability
One way or another, the government is going to target your realized gains from cryptocurrency investments. Bearing in mind a few key tips and strategies may help you limit how much you’ll owe when tax season comes around.
One of the main reasons why Bitcoin and other cryptocurrency investors end up missing their tax payment deadlines is that they do not have enough cash on hand to pay for the taxes incurred through their cryptocurrency gains. When you make a taxable cryptocurrency transaction (or, in other words, you sell any of your Bitcoin for a profit), you would do well to put aside the taxable amount from the proceeds of your sale in U.S. dollars that you can use to pay those taxes.
You shouldn’t only focus on your Bitcoin gains. If you took capital losses on cryptocurrency transactions during the tax year, you can obtain offsets on gains or up to $3,000 of taxable income on your annual return. Many prudent cryptocurrency investors choose to sell a losing position prior to filing their tax return in order to claim a loss and immediately reopen their position after filing.
If you have any questions, you should speak to an experienced Sacramento tax attorney as soon as you can. Most instances of tax code violations in the United States occur due to honest individual taxpayer mistakes. The vast majority of these taxpayers attempted to do their taxes themselves or didn’t bother looking into the finer areas of their liability. Especially with a new and complex area such as cryptocurrency capital assets, the best way to stay out of trouble with the IRS is to work with your attorney to understand what is required and how to prepare for your upcoming filing.
NewPoint Law Group Can Help You with Your California Bitcoin Taxes
Whether you are concerned about your liability, planning for your upcoming return, or facing a government audit, the Modesto tax attorneys at NewPoint Law Group may be able to help. You can reach us by calling 1-800-358-0305.