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U.S. taxpayers are required to report income from virtual currency transactions, the Internal Revenue Service informed taxpayers in a notice.
The agency provided advice on the virtual currency in IRS Notice 2014-21 for taxpayers and tax preparers.
Like transactions in any other property, virtual currency transactions are taxable. Those who fail to report the tax consequences of these transactions may be audited and possibly subject to interest and penalties, the IRS noted.
Possible criminal prosecution
Taxpayers may also be subject to criminal prosecution in extreme situations if they do not properly report the tax consequences of virtual currency transactions. The criminal charges include the filing of a false tax return and tax evasion.
Persons convicted of tax evasion are subject to a fine of up to $ 250,000 and a term of imprisonment of up to $ 250,000. five years. Persons found guilty of filing a false income tax return are liable to a fine of up to $ 250,000 and a maximum term of imprisonment of up to $ 250,000. at three years old.
Virtual currency is generally defined as a numerical representation of value generally operating in the same manner as the traditional currency of a nation. Since virtual currency transactions may be difficult to trace and have an inherently “pseudo-anonymous” appearance, taxpayers may be tempted to hide the taxable income of the IRS, according to the notice.
Also read: Trump’s new economic adviser suggests that crypto investors have a friendly tax policy
Property Tax Incentives
Virtual currency is considered to be property for federal tax purposes, according to Notice 2014-21. The general tax principles apply to real estate transactions using a virtual currency. This includes the following rules:
- A payment in virtual currency is subject to an information return to the same extent as any other payment made in a property.
- Payments in virtual currency to service providers and independent contractors are taxable, for which the rules on self-employment tax generally apply. Payers should normally issue Form 1099-MISC.
- Salaries paid in virtual currency are taxable to the employee and are subject to federal income tax deductions and payroll taxes, and the employer must declare them on the W-form. 2.
- Some third-party payments in virtual currency on behalf of merchants accepting virtual currency must report payments to these merchants on Form 1099-K, Payment Card Transactions and Third Party.
- The character of the loss or gain arising from the exchange or sale of the virtual currency is based on the question of whether the virtual currency is an asset in the hands of the taxpayer.
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