The Internal Revenue Service has become increasingly involved in transactions involving cryptocurrency. They are receiving information from Coinbase regarding these transactions, so it is possible that you may be notified of this from Coinbase. The IRS will do whatever they deem necessary to collect taxes when they believe you owe them, as well as penalties for noncompliance. The problem is that the interpretations of tax law in this new area of virtual money is not always clear. The following are a few reasons a tax attorney, with experience in cryptocurrencies, can help you.
They can help determine the fair market value of your cryptocurrency
Due to the volatile nature of virtual currencies, the determination of the net gain of the transaction involves either the time you used it for a transaction to obtain property, or the time you received it for property or services. A tax attorney will help reduce these gains (and therefore your tax liability) by determining whether the property you bought was a capital asset or an ordinary asset. This applies to both the property that you are obtaining and the virtual currency that you were using at the time of the transaction.
They can help you with your self-employment taxes
If you are self-employed and receiving virtual currency for your business, it can affect your self-employment tax. Virtual currencies can rise and fall rapidly, so this becomes an important issue for your taxes. For a self-employed business owner, this can result in an unexpected tax bill, especially if you are receiving frequent payments with cryptocurrencies. Determining the value of various virtual currencies over a period of several months can be complicated, but a tax attorney can calculate the numbers accurately, and possibly reduce the gain that the IRS has assessed you with.
They can help you with bookkeeping compliance
As virtual currencies have begun to spread, the IRS's bookkeeping compliance with this type of currency seems to be evolving rapidly. A tax attorney will be aware of the latest requirements from the IRS. They can look at your records to determine how well you are in compliance. Problems that are found in your records can be addressed, ensuring that your bookkeeping is done properly and is accurate. In the future, you will be able to keep the records the IRS expects of you regarding virtual currency transactions.
The IRS is taking a long look at virtual currencies and the transactions associated with them. They are often treated suspiciously, the same way they do cash transactions. Coinbase is now reporting to the IRS, and this means you could get audited. If you have gotten any notifications from Coinbase regarding the IRS, or you believe you have enough transactions that you want to make sure everything is being done legally, you need to talk to a crypto tax attorney.
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