Crypto Tax Cheats and What to do if You can’t pay tax
You’ve probably seen thousands of crypto investors on social media sites showing off their new cars, or holidays they’ve been on while reporting low income on their taxes. Although this is extremely common, the IRS is slowly catching on.
How They Find Tax Cheats and use the information for collection
To perform the tax compliance searches looking for crypto tax cheats, the IRS is allowed to look through any publically available internet information (which includes social media sites).
They then use this information gained to locate taxpayers, identify assets that can be seized, and find out other unreported income streams.
However, they can only search social media accounts that are open for the public to see. They are not allowed to log in to personal or fictitious accounts to see what is being shown on restricted social media accounts.
How easy it is to fall into the trap of a crypto tax cheat
The problem with understanding the tax rules with cryptocurrencies is that they are seen as a “tangled web of tax rules”. As crypto is still relatively new, regulation is constantly changing to find the most efficient way to tax it.
Traditional brokerages tend to provide a form 1099-B which provides all transactions made through the brokerage for the year. However, this is not the case for the crypto world, as not every crypto exchange sends data to the IRS. And with the introduction of the Cares act and constant price changes in the crypto market, the cost basis (original price of the crypto investment) is hard to calculate, leading to tax complications.
Investors must understand this fact when it comes to crypto and the IRS: Crypto is an asset. This means that when it’s used to buy, swap, and send as a gift, or when it’s sold, crypto is classed as disposition. Thus, any profit made from its original price is taxed as a capital gain or ordinary income.
What’s a Soft Letter?
As recently as 2019, the IRS started sending out ‘soft letters’ to over 10,000 of those who didn’t report their crypto income for that financial year.
But what are soft letters? Soft letters are warnings for those using crypto cheats, so they can review and change their current tax processes, change current returns, and pay the taxes that are owed.
When these soft letters are ignored, recipients could face full IRS audits. If the result of this ends in failure to report, multiple fines, and even prison time can occur as a consequence.
Talk to an Expert
If you are assessed with a big tax assessment that you can’t pay in full, dealing with tax problems doesn’t always have to end with a headache. Finding a trusted and specialized tax relief professional is crucial for a permanent solution and protection of assets and income from the IRS.
Ace Plus Tax Resolution is one of the leading tax relief professionals that assist taxpayers with IRS and state tax problems. From payroll tax problems to offer in compromise, and other resolution services, Ace Plus Tax Resolution is here to help.
Based in Los Angeles, with the experiences and capabilities to support clients across the USA, James Cha is a CPA and Certified Tax Resolution Specialist that has over 30 years in the industry. Contact him now on (213) 600-7388 or at James@AcePlusTaxResolution.com to learn more.