The Internal Revenue Service (IRS) is cracking down on cryptocurrency investors, and it appears likely that the IRS will have new enforcement tools at its disposal once President Biden signs the pending infrastructure bill into law. As a result, investors will need to be more careful than ever when preparing their tax returns next year. To ensure that they are ready, investors should begin preparing now—and they should make sure they have the documentation they will need to accurately prepare their returns in 2022. Here are some tips from Maryland tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.
Figure Out What Forms You Will Need to File
While you will need to report your cryptocurrency gains on the appropriate Form 1040, you may need to file other forms with the IRS as well. Different tax forms require different information. To make sure you aren’t scrambling at the last minute, you should figure out which forms you will need to file now—and then you should review these forms to make sure you know what information you will need to gather.
Make Sure You Can Obtain All Necessary Documentation from Your Exchange Platform
While cryptocurrency exchange platforms are generally getting better about helping their customers manage tax compliance, some are doing a better job than others. Ultimately, of course, it is up to you—not your exchange—to make sure you meet your obligations to the IRS. Once you figure out what information you need, you should then see if you can download this information through your online account. If you can’t, you should start working now to figure out how you can get the transaction data you will need to prepare your returns.
Avoid Making Costly Assumptions
Unfortunately, there is a lot of misinformation out there when it comes to cryptocurrency taxes. For example, many people assume that crypto transactions qualify as like-kind exchanges under Section 1030 of the Internal Revenue Code. However, this isn’t necessarily the case. In order to avoid inadvertently underreporting your crypto-related tax liability, you need to make sure you aren’t making flawed assumptions based on inaccurate information.
Assess Your Past Cryptocurrency Tax Compliance
If 2021 isn’t the first year that you invested in cryptocurrency, you will want to assess your past cryptocurrency tax compliance. The IRS can audit several years’ worth of taxpayers’ returns, and miscues in your returns for 2021 could lead to an examination of your past filings. If you have made mistakes, addressing them proactively will help you avoid unnecessary consequences—though you will need to be careful to ensure that you choose the right option for disclosing any errors to the IRS.
Request an Appointment with Maryland Tax Attorney Kevin E. Thorn
Do you have questions or concerns about cryptocurrency tax compliance? If so, we encourage you to contact us for a confidential consultation. To request an appointment with Maryland tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 240-235-5096, email ket@thornlawgroup.com or inquire online today.
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