Today's WSJ has an article about things likely to trigger an audit in 2022 and crypto topped the list.
Anyone think the IRS isn’t taking cryptocurrency seriously? The No. 1 question on this year’s Form 1040 asks if you have bought, sold, traded or disposed of any financial interest in a virtual currency. The IRS has a mandate to collect $30 billion in crypto tax revenue over the next 10 years, and is treating all types of digital currency as real property for tax purposes.
“The IRS has seen the tremendous growth in this industry, but the number of people reporting their crypto income for tax purposes is not growing at the same rate,” says Dan Hannum, chief operating officer at Zenledger, a crypto tax software company contracted by the IRS to track the cryptocurrency movements of U.S. citizens.
Tax filings related to crypto earnings pose challenges because most investors use several exchanges world-wide and 10 to 20 different digital wallets, Mr. Hannum says. It is up to individuals to aggregate all of this information on Form 8949. That’s why many tax pros recommend crypto investors seek the help of crypto tax specialists. “Don’t think the IRS can’t track your activity on a digital wallet. That’s no longer true,” says Mr. Hannum.
• Red flags: Underreporting crypto income and any interest income from a crypto interest account or from a nonfungible token; and not listing all of your taxable trades individually.
Anyone think the IRS isn’t taking cryptocurrency seriously? The No. 1 question on this year’s Form 1040 asks if you have bought, sold, traded or disposed of any financial interest in a virtual currency. The IRS has a mandate to collect $30 billion in crypto tax revenue over the next 10 years, and is treating all types of digital currency as real property for tax purposes.
“The IRS has seen the tremendous growth in this industry, but the number of people reporting their crypto income for tax purposes is not growing at the same rate,” says Dan Hannum, chief operating officer at Zenledger, a crypto tax software company contracted by the IRS to track the cryptocurrency movements of U.S. citizens.
Tax filings related to crypto earnings pose challenges because most investors use several exchanges world-wide and 10 to 20 different digital wallets, Mr. Hannum says. It is up to individuals to aggregate all of this information on Form 8949. That’s why many tax pros recommend crypto investors seek the help of crypto tax specialists. “Don’t think the IRS can’t track your activity on a digital wallet. That’s no longer true,” says Mr. Hannum.
• Red flags: Underreporting crypto income and any interest income from a crypto interest account or from a nonfungible token; and not listing all of your taxable trades individually.
