The last few years have brought cryptocurrencies far more into the mainstream, thanks in large part to the meteoric rise in asset value for many of the coins. Such mainstream attention has already brought additional cryptocurrency regulation and IRS scrutiny – in 2014 the IRS began asking taxpayers directly on their Form 1040 whether or not they had engaged in virtual currency transactions during the tax year. This question remains on tax forms today, and further regulation could be on the way.
As part of President Biden’s American Families Plan, all cryptocurrency transactions in excess of $10,000 USD would need to be reported to the IRS. This would presumably include purchases, sales and exchanges, as well as the use of virtual currencies to purchase physical goods directly (Tesla officially accepted Bitcoin as a form of payment for several months this year, prior to halting this policy in early May). Businesses receiving virtual currencies as a form of payment would also be subject to cryptocurrency regulation and reporting requirements.
Virtual currency tax reporting should already be seeing a significant increase in the coming years due to more and more of the online exchanges working to legitimize their platforms, such as the main U.S. based exchange Coinbase, which became publicly traded in recent weeks. Other investment platforms are beginning to offer cryptocurrencies as well, including Robinhood. This means more tax reporting, and far less opportunity for capital gains on crypto investments to go unreported and untaxed.
If you’ve started to dip into the crypto market and aren’t sure about how to handle taxes, be sure to reach out to your Henry+Horne tax advisor. We don’t accept Bitcoin quite yet, but we can definitely make sure you get your tax reporting right.
Austin M. Bradley, CPA