Avoiding IRS Trouble: What Crypto Investors Need to Know
Cryptocurrency has exploded in popularity over the past decade. Many people see it as an exciting investment, a way to make quick profits, or even the future of money. However, what some investors don’t realize is that the IRS treats crypto much like stocks and bonds. This means that if you’re not careful, you could end up facing serious tax trouble.
Crypto Is Taxed Like Stocks and Bonds
One of the biggest misconceptions about cryptocurrency is that it’s separate from traditional investments when it comes to taxes. In reality, the IRS considers cryptocurrency property, just like stocks and bonds. This means that every time you sell, trade, or use your crypto to buy something, you may be triggering a taxable event.
For example, let’s say you bought Bitcoin for $10,000 and later sold it for $30,000. That $20,000 profit is considered a capital gain, and you must report it on your taxes. Even if you trade one cryptocurrency for another—like swapping Ethereum for Solana—you may owe taxes on any gains you made. Many crypto investors don’t track these transactions properly, which can lead to underreporting and IRS penalties.
Not Reporting Crypto Can Lead to Penalties
The IRS has been cracking down on cryptocurrency tax reporting. In recent years, they’ve added a question to the top of tax forms asking whether taxpayers have bought, sold, or received cryptocurrency. If you answer “no” but have made crypto transactions, you could be committing tax fraud.
Failing to report crypto transactions can result in fines, penalties, or even audits. The IRS has also been working with cryptocurrency exchanges to get information on users, so even if you think your transactions are private, the IRS may still have access to them.
Mining, Staking, and Earning Crypto? That’s Taxable Too!
Many people earn cryptocurrency through mining, staking, or even getting paid in crypto. What some don’t realize is that these earnings are considered taxable income. If you mine Bitcoin or earn staking rewards, the IRS expects you to report the fair market value of the coins on the day you received them.
Similarly, if you receive crypto as payment for goods or services, it’s treated just like regular income. If you fail to report these earnings, you could end up owing more than you expected when tax season arrives.
Why You Need a Tax Resolution Professional
If you’ve been trading, mining, or earning cryptocurrency and haven’t been keeping track of your taxes, you’re not alone. Many people get caught off guard by the IRS’s rules on crypto, but ignoring the issue can make things worse. If the IRS believes you’ve underreported your taxes, you could face penalties, interest, or even an audit.
That’s where a tax resolution professional can help. An expert like Ben Butterfield, owner of BPB Tax Resolutions, can guide you through the process of correcting past mistakes, negotiating with the IRS, and ensuring you stay compliant moving forward. Whether you need help filing overdue tax returns, setting up a payment plan, or defending yourself in an audit, a tax resolution expert can make all the difference.
Don’t let crypto tax issues catch you off guard. If you’re unsure about your tax situation, reach out to BPB Tax Resolutions today and get the guidance you need before the IRS comes knocking.
