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Here's how to avoid an audit from the IRS if you've got crypto

Apr 04, 2018 Posted /  557 Views

Here's how to avoid an audit from the IRS if you've got crypto

Knowing your cost basis will determine your responsibility to the IRS if you you were compensated in ethereum or you traded a few of your bitcoin in 2017. As the tax Day (April 17) is coming close, possessors of cryptocurrency have to take time to evaluate their holdings in addition to all of their transactions during 2017. The Internal Revenue Service (IRS) lately sent out a word of warning to filters, ringing a bell them that any income originating from these transactions must be reported on their tax returns.

In the worst case, if you fail to report your virtual currency transactions this could lead to fines of up to $250,000 along with prison.

Before this time, you might know that if you traded your cryptocurrency and had a profit, then you must to tell the IRS and the give the apt capital gains tax. You might also be familiar with that if you're paid in cryptocurrency, you should subtract taxes from it. Things get complicated in this way that so as to estimate the taxes you owe, you should know your cost basis that is, the original worth of the asset for tax purposes and this data can be difficult to get. Sarah-Jane Morin, counsel at Morgan Lewis said "There isn't any official reporting mechanism in place, the way the IRS is looking at this they feel like people should comply and use their best efforts to figure out cost basis" Morin said. Which means it's on to you to track down your cost basis. Here's how you can do that

Hunting for exchanges

For instance, if you want to find the cost basis of some long-held stocks furthermore your brokerage firm didn't have that data; you could excavate past prices as well as dividend payments to know of your cost basis.

The procedure is less clear-cut with cryptocurrency, which any one investor can deal on numerous platforms.

Remunerated in digital currency

Exchanges can give you a little idea of your cost basis, however what if somebody paid you in digital currency or else if you mined your own coins?

Mining coins adds an extra level of difficulty in computing cost basis.

Morin said "Are you a passive investor who was mining digital currency? Were you executing it as an employee? Did someone compensate you to do it? In case you mine your own coins, then you should know the value of the currency on the day you received it and count it toward your gross income"

In case an intermediary is paying you to mine coins, then you may be getting payment as an independent contractor and you would be in charge for self-employment taxes. On the other hand, if you're doing this job as an employee, then your employer needs to hold back the appropriate income taxes. Morin said "If you're getting a fraction of your mining as payment, then your cost basis is supposed to be based on the price when you mined it"

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Tags: virtual currency transactions mining digital currency

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