Originally published on thetechblock.com
In early 2021, the IRS announced that it was clamping down on people who omit income they receive from cryptocurrency from their tax returns. As investor Daniel Calugar explains, the initiative they launched is officially dubbed Operation Hidden Treasure.
The IRS announced that the agents assigned to this new team are training in tracking virtual currency and are well-versed in all things cryptocurrency. This new group brings into focus cryptocurrency as it relates to personal taxes.
Here are some details of what it means.
What is Operation Hidden Treasure?
The new IRS initiative is meant to discover cryptocurrency tax evasion schemes, punish those who have engaged in them, and discourage people from committing the crime in the future.
It's a partnership between the IRS' criminal investigation unit and its civil office of fraud enforcement.
Agents assigned to the task force will look for signatures of tax evasion. One example is structuring, where people avoid IRS reporting requirements by keeping each transaction they make under the $10,000 automatic reporting threshold.
The IRS will also work with third-party vendors to analyze cryptocurrency and blockchain transactions so they can "track, find and work to seize" the currency in "both a civil and criminal setting," as IRS officials have said.
How the IRS Treats Cryptocurrency
In IRS terms, cryptocurrency is no different than "normal money." In other words, cryptocurrency transactions are treated the same way as any other property transaction.
For purposes of taxes, cryptocurrency holdings are treated in the same way as other assets such as gold or stocks. This means that, in certain situations, the IRS will require people to claim their cryptocurrency holdings on their annual tax returns.
If all you do is purchase cryptocurrency and keep it in the original exchange where you bought it, you won't need to report that. IRS reporting requirements are only triggered when you begin to exchange the cryptocurrency you own. This includes selling and trading cryptocurrency and paying for services or goods with cryptocurrency.
How to Properly Report Cryptocurrency Income
Dan Calugar points out that because the IRS treats cryptocurrency as property, you'll report it on your annual taxes based on the capital gains you have in that year -- or the losses on it.
In this way, reporting cryptocurrency on your annual IRS tax returns is relatively straightforward. You'll have to report the difference between how much you spent at the time you received or purchased the cryptocurrency and how much you earned when you sold or exchanged it. A positive return would be considered a capital gain, while a negative return would be viewed as a capital loss.
This is important for tax filers to understand, as you can deduct capital losses from your annual taxable income. Individual filers, for example, can deduct as much as $3,000 in capital losses each year.
While there is much confusion about cryptocurrency-related to government regulation and how different agencies handle it, IRS reporting is relatively simple. If you buy, sell, or exchange cryptocurrency at any time, just know you may need to report it to the IRS.
About Daniel Calugar
Daniel Calugar is a versatile and experienced investor with a computer science, business, and law background. He developed a passion for investing while working as a pension lawyer and leveraged his technical capabilities to write computer programs that helped him identify more profitable investment strategies. When Dan Calugar is not working, he enjoys working out and being with friends and family, and volunteering with Angel Flight.
tax