Although the IRS may not be the most adept at tracking crypto trends, it is not impossible to hide your Bitcoin gains. Koinly, a crypto tax calculator, will show you how the IRS can track your cryptocurrency.
Have you made any crypto-related income or gains? Thanks to the IRS, they would love a cut.
The IRS ignored crypto markets for a long time. This led many crypto investors to believe that they could either underreport, or avoid, crypto taxes. They are now paying more attention and have made it clear that your crypto is subject either to Capital Gains Tax, or Income Tax.
Your crypto taxes must be reported as part of your tax return. The deadline is fast approaching. You have until April 18th 2022 to file.
You think you can risk it? You think you’ll risk it? You might be wrong. Koinly, the crypto tax calculator, will explain how the IRS tracks your cryptocurrency.
Can the IRS track Crypto?
Let’s start with the obvious question. Yes, the IRS can track crypto, BTC or Ethereum. DOGE and more are also possible.
What is the IRS tracking crypto for?
There are many ways to do this, but the most common is around the growing amount of personal information surrounding crypto transactions.
All centralized crypto exchanges must have KYC verification to be allowed to operate in the USA. Although KYC procedures can vary, the minimum requirements are:
Your name
Your address
ID
Some exchanges will even require your social security number. The IRS can identify you with this data, but KYC checks are evolving. You might have noticed that a growing number of central exchanges now use advanced KYC processes to collect data such as:
Biometric identification
A quick video of you
Photos of you alongside your ID
Other exchanges, and indeed decentralized wallets in certain instances, will also collect information about you such as your bank account details and telephone number.
All this information goes where? The IRS could be the destination.
To ensure tax compliance, the IRS can legally force crypto exchanges to share customer information.
Wait! Crypto exchanges report to IRS? Many crypto exchanges have confirmed that.
John Doe summonses from the IRS have already been issued to Coinbase, Kraken, and Poloniex. This summons requires a company to share its user data with IRS to identify and audit taxpayers.
Many other cryptocurrency exchanges are also now issuing 1099 forms to users in compliance with IRS guidance. To name a few, these exchanges issue 1099 forms to their users: Binance US (Robinhood), Crypto.com, Celsius and eToro. Gemini are just a few.
Did you receive a 1099? The IRS also sent two identical copies. Two copies identical are sent out, one to you and one for the IRS.
OK, but what if I keep it decentralized?
So while centralized wallets and exchanges report to the IRS, decentralized wallets and exchanges are more secure. They don’t even collect KYC information.
Not quite so straightforward unfortunately.
First, you can move crypto between decentralized wallets and centralized exchanges. The exchange will have your wallet address. This information is available for the IRS.
You might not expect your wallet to be as decentralized. Binance is the owner of Trust Wallet and they are already in a legal dispute with the IRS about operations in the US.
Some wallets also ask for information like your bank account or phone number. These wallets aren’t yet being pursued by the IRS, but they will be if they do.
Operation Hidden Treasure was launched in March 2021. The IRS and civil office of Fraud Enforcement lead the operation. It stars a team that is trained in digital asset tracking and has one goal: to eradicate tax fraud and evasion.
What are you required to report to IRS?
There’s no place to hide. Your crypto can be and will be tracked by the IRS. To avoid an unwanted audit, the best thing to do is to accurately report your crypto to IRS.
What are you required to report? Quite a lot, including:
The cost basis, or fair market value of your crypto currency in USD at the time you bought it.
The day you dispose of your crypto, the fair market value in USD.
Capital gain or loss that you realized from each transaction.
The transaction and the parties involved.
Receipts for purchase or sale
Keep track of all transactions and transfers from your crypto wallets.
If you are an active investor, it can be overwhelming to find the right information. Koinly makes this easy. Here’s how:
Connect all of your wallets, exchanges, and blockchains to Koinly via API or import CSV files of transaction history. It is important to do this for each wallet and exchange that you use (Koinly supports over 600). ).
Have a cup of coffee, and let Koinly take care of the rest. It will calculate your cost basis, capital gain or loss and fair market value for any crypto income received on the date you received it.
Get your crypto tax report. You can download the tax report that you need whenever you need it. Koinly is able to generate many reports, including Schedule D and Form 8949, TurboTax online reports, and our Complete Tax Report with all the information you need about crypto taxes.
Your crypto tax report can be used to file in your preferred manner. Send your reports to your accountant.
