John Bullis: Cryptocurrency is an asset; sales are to be reported
In 2014, IRS classified all virtual currencies as “property” for tax purposes. Think “bitcoin” etc.
That means the sale of virtual currencies is a taxable event, just like the sale of a stock or bond.
Now, IRS is sending letters to more than 10,000 holders of cryptocurrency that may have not reported the sales and may not have paid taxes on the gains (or claimed losses).
Anyone receiving a letter from IRS should respond timely.
A taxpayer that receives one of those IRS letters may not qualify for the IRS voluntary disclosure program. That could mean not only additional taxes to pay, but some significant penalties and interest.
However, if a taxpayer has not received an IRS letter on this topic, then amended returns can be filed to report sales of cryptocurrency and pay taxes on any gains. IRS will still charge interest and the failure to pay on time small penalty, but the risk of other penalties can probably be avoided.
If you bought and sold virtual currencies and suffered a loss, you probably paid more income taxes than you should have. An amended return (if it is within three years of filing due date) may result in a tax refund.
It seems the time periods involved in the current IRS letters is mostly for sales in 2013 through 2015.
Coinbase Inc. announced that it issued forms 1099K to its customers for 2017 sales, if the client had more than 200 transactions or more than $20,000 in gross receipts. That is a help for some folks.
If you sold some virtual currencies and did not remember to report those sales for a profit on your income tax returns, maybe it would be best to do the amended returns now, with an explanation signed under penalties of perjury. If you did not have intent to evade paying taxes, then some of the big penalties and related interest probably can be avoided.
If your sales of virtual currencies resulted in a loss (your cost was more than the sales proceeds), then amended returns might produce a refund.
All transactions of investments and sales of virtual currencies should be recorded just like your purchases and sales of stock. Documentation of the transactions should be saved.
Did you hear “When you stop expecting people to be perfect, you can like them for who they are.” Donald Miller.