Let Me Tell You How It Will Be: The Taxman Is Coming For Crypto-Currency Tax Cheats

Back in 2009, when cryptocurrency first appeared, it was initially thought to be a novelty, perhaps a passing fad or trend. An untraceable virtual currency appealed to lots of different players for a multitude of different reasons. Early investors were particularly intrigued by a currency that couldn’t be traced or taxed. That has all changed. And for the past 10 years, the taxman has been doing his homework and finding ways to track, trace, identify cryptocurrency players and dabblers and tax them!

Remember The Beatles song, Taxman?  Keep these lyrics in mind if you have had any dealings with cryptocurrencies hoping for tax-free gains.

Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman
Yeah, I’m the taxman

This Is No Time To Be Cryptic About Cryptocurrency

I’ve been working to help taxpayers in trouble with the IRS my entire career, and let me tell you, the taxman will always find a way to get a piece of any financial gain. Cryptocurrency has grown in popularity and in value. Companies are using cryptocurrency to buy and sell goods and services. In fact, regular folks are able to use cryptocurrency to buy homes. So, it’s pretty likely cryptocurrency is here to stay.

Back in 2014, the IRS ruled that bitcoin would be treated as property for tax purposes. In July of 2019, the IRS started sending out letters to cryptocurrency owners warning them to amend their tax returns and pay taxes. Now, they have enrolled a top tax automation software company to help them unearth the cryptocurrency tax cheats. If you want to steer clear of big IRS trouble, you’ll have to resist the temptation to keep your cryptocurrency dealings secret.

Capital Gains

Should five percent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman
Yeah, I’m the taxman

Five percent would be welcome, but you have to remember George Harrison wrote Taxman in 1966. At that time the Beatles were in the 90% tax bracket. It seems they tried schemes to avoid paying taxes, but ultimately had to face the music. (Pun intended!)  This anecdote says it clearly: Although George was the Beatle who paid the most attention to their financial situation, the others were aware as well. “We were pissed off with the tax situation,” remembers Ringo. “We went into one mad scheme where we paid a guy to go and live in the Bahamas and hold our money for us so it would be tax-free. And in the end we had to bring all they money back, pay the taxes on it and pay this guy. So we might as well have just left it where it was. It was a scheme that someone had put forward with Brian (Epstein) and we went for it.” http://www.beatlesebooks.com/taxman

Keep in mind that almost all profits from crypto trading fall into the category of capital gains tax, not income which means your gains will be taxed anywhere from 0% – 37%. It all depends on your gains and your tax bracket.

You Will Be Notified

If your tax returns from as far back as 2016 get flagged by the new system the IRS is using, you will eventually hear from the IRS. To avoid getting on their really bad side, come clean. Otherwise, as the Beatles found out, it doesn’t pay to try to cheat because if you do:

 If you try to sit, sit) I’ll tax your seat
(If you get too cold, cold) I’ll tax the heat
(If you take a walk, walk) I’ll tax your feet