Home Crypto/Forex Busting 6 Major Myths About Tax On Cryptocurrency

Busting 6 Major Myths About Tax On Cryptocurrency

The IRS considers cryptocurrencies as property (and not currency) for tax purposes. In a Notice 2014-21, the IRS specifies the various crypto transaction events that could be taxable in the U.S. But over the course of time, there have been numerous myths and misconceptions about the taxes on cryptocurrency.

This article aims to bust the 6 major myths that one may have about Tax On Cryptocurrency.

Myth 1 About Tax On Cryptocurrency: IRS Form 1099

You will only owe taxes on Bitcoin transactions, if and only if you receive the IRS Form 1099. You can tick the box on your tax return that states you did not have your Bitcoin transactions if you have not been sent Form 1099.

Fact Check

Even if you do not file a Form 1099, tax may still be due. Taxpayers use Form 1099 to alert the Internal Revenue Service (IRS) about all of the numerous forms of income they get outside of their normal paycheck during the year. This form of income is also known as revenue from non-work-related sources. To prevent an audit, taxpayers must declare all of their outside income to the IRS.

However, if you’re audited and your best justification is that you didn’t disclose your transactions because you didn’t obtain a Form 1099, you are most likely to face the consequences.

Myth 2 about Tax On Cryptocurrency: Private Wallet

You don’t have to declare your cryptocurrency on your tax returns if you keep it in a private wallet (and not in exchange).

Fact Check

The truth is that the tax requirements are the same whether you use a private wallet or a crypto exchange. The desire to conceal ownership by transferring assets to anonymous holding companies is not new. But the IRS can track down any crypto transactions that you make when you were

The IRS Form 1040’s Bitcoin question is not confined to cryptocurrencies owned through exchanges. Even if you have crypto in a private wallet if you claim “no,” you may be making false statements on a tax return signed under penalty of crime.

Myth 3 about Tax On Cryptocurrency: Trust, LLC, etc.

If you store your crypto in a trust, LLC, or other institution, you will not owe tax on the transactions and will not be required to declare them. Furthermore, revenue made through LLCs is tax-free.

Fact Check

Investing in cryptocurrency through a company might help you avoid paying taxes on the profits. However, unless the organization qualifies (and is registered) as a tax-exempt organization, it will most likely be required to file tax returns and may owe taxes.

Depending on the circumstances and tax elections, LLCs are taxed as corporations or partnerships. Since single-member LLCs are ignored, LLC earnings are reported on the individual owner’s tax return.

Myth 4: Loan Or, Non-Sale Transaction

You don’t have to declare the proceeds of my crypto sale if you frame it as a loan (or any other non-sale transaction).

Fact Check

Consider if you’re lending or selling cryptocurrency. Are you receiving the same cryptocurrency that you lent? Do you charge interest on the loan and pay tax on the interest as it comes in?

Furthermore, if you sell crypto and obtain a written contract, your taxes may become much more complicated due to installment sale calculations.                

Myth 5: Cryptocurrency Exchange

You can’t modify the exchange’s regulations independently, and thus a crypto exchange is a sort of trust. For tax reasons, you do not own the cryptocurrency in your account, and you do not need to disclose transactions through an exchange.

Fact Check

In reality, this has been confirmed by the IRS. According to IRS guidelines, the IRS considers taxpayers to be the owners of the cryptocurrencies held in their exchange accounts.

The IRS would never regard crypto kept in an exchange account as belonging to the exchange (as trustee), rather than the account holder.

Myth 6: Tax Code

Crypto-to-crypto transfers are not taxable as a result of Congress’s revision to Section 1031 of the tax law, which confines like-kind swaps to real property.

Fact Check

A taxable gain arises from the “sale or other disposals of property,” according to Section 1001 of the tax law. A taxable gain can result from the selling of any sort of property for cash or other goods.

According to the IRS, cryptocurrency is property. Thus selling cryptocurrency for cryptocurrency is a sale of cryptocurrency for the value of the new cryptocurrency. In any event, crypto-to-crypto exchanges are taxed unless they qualify for another exclusion since Section 1031 has confined like-kind exchange treatment to actual property.

The Bottom Line

Taxes and crypto are not the best combinations. But every taxpayer must organize their activities and transactions in order to reduce their tax burden. Another quick tip is to stay as far as you can from quick cures and hypotheses. The IRS appears to feel that many crypto taxpayers are breaking the law, so being cautious in the future and cleaning up the past are worthwhile considerations.

FAQs

  1. Do I have to pay taxes if I keep my crypto in a wallet?

The tax requirements are the same for both private wallets and crypto exchanges. One may want to conceal ownership by transferring assets to anonymous holdings. But the IRS can track down any crypto transactions that you make when you were

So, even if you have crypto in a private wallet, if you claim “no,” on the IRS Form 1040’s Bitcoin question, you may be making false statements on a tax return signed under penalty of crime.

  1. What is Form 1099 used for?

Taxpayers use Form 1099 to alert the Internal Revenue Service (IRS) about all of the numerous forms of income they get outside of their normal paycheck during the year. This form of income is also known as revenue from non-work-related sources. To prevent an audit, taxpayers must declare all of their outside income to the IRS.

  1. Do you have to pay tax on cryptocurrency?

Yes, you will have to pay capital gains and losses taxes on your profits if you acquire or sell cryptocurrencies. The sort of tax imposed is determined by whether the investment is short-term or long-term.

Share with us your thoughts and experiences in the comment box below!

PhonesWiki
Rashmi
Crazy about technology, sports, cinema, my colleagues, and useless anecdotes. Far too connected and curious. When I'm not on my smartphone, you can find me tinkering anything tech!

LEAVE A REPLY

Please enter your comment!
Please enter your name here

NOT TO BE MISSED

Best anime series & movies arriving on Netflix in December

November was an exciting month with many tempting titles added to the anime catalog of Netflix. These included the latest movie from...

Another FIFA Release, Another Year of Loot Box Controversy

FIFA 22 has just been released and while the usual buzz that surrounded the launch was still there, the noise from critics...

Free Fire Redeem Code Today: How to redeem codes and collect free rewards?

Garena is offering Free Fire redeem code at no extra cost once again. With the PUBG ban coming into force, the online...

Filecoin Price Prediction makes it THE Hottest Altcoin of 2022!

Fluctuations in Filecoin price has turned the spotlight towards it amon crypto investors. Investors have always shown a keen interest towards alternative...

The Top 3 Technological Advances in Dry Vacuum Pumps

Dry vacuum pumps are machines designed to suck gas or air from containers to create a vacuum. Dry vacuum pumps are common...

Recent Comments