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Cryptocurrency is a popular way to invest today, but too many taxpayers aren’t reporting it correctly on their tax returns. Even though crypto isn’t actual money, it is property much like gold.
When you use crypto, just like any other commodity, it may incur taxable income. According to the IRS, millions of Americans aren’t paying taxes on their crypto earnings but are expected to by reporting them on their 1040.
On this year’s 1040, you may have noticed this question, ‘At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?’
If you’ve dealt with cryptocurrency in any way, you must answer this question appropriately, but it may not mean you owe taxes on your crypto transactions.
According to the IRS, crypto transactions are only taxable if there is income or a loss, similar to what you would report if you had a gain or loss with a stock investment.
If you bought crypto but didn’t use it or sell it, you don’t have a taxable event and won’t have a tax liability because of it. But, if you used your crypto to buy goods or services or you cashed in your crypto, you likely incurred taxable income or loss.
At this point, you might be thinking that you filed your taxes incorrectly. If you answered the crypto question incorrectly and think you might owe taxes, you must file an amended return. If you don’t, the IRS will send you a letter soon enough requiring you to do so.
If you are unsure how to proceed or if you even made a mistake, contact us today and we’ll help you sort it out.