How to Stay Compliant with Cryptocurrency Tax Reporting
As cryptocurrency has taken on an inflated role in the financial mainstream in recent years, it is becoming increasingly important to ensure that you remain compliant when it comes to the industry.
In a recent post by Taina Tech, the company highlighted the developments in the crypto tax industry over the last couple of years and why it is becoming increasingly important to ensure that you report taxes on your assets.
In 2021, the Internal Revenue Service placed the cryptocurrency tax reporting question on Form 1040 and asked “at any time during 2020, did you receive, sell, send, exchange, or acquire any financial interest in a virtual currency?”. This meant that taxpayers could no longer claim that they were not aware that they had to report tax on crypto.
Failure to file an 8949 form by those completing these forms could result in your account being audited by the IRS, with failure to report cryptocurrency tax activity potentially being considered tax evasion or fraud.
In addition to this, both the OECD and the IRS are expected to publish crypto information reporting changes in 2022. These crypto tax changes will increase the calculation and taxation of transactions in crypto and digital assets. While taking on different approaches to reporting, they will expose taxpayers to the tax authorities, thereby identifying the taxpayer.
In other legislative areas, the US Senate in August 2021 passed the Infrastructure Investment and Jobs Act, which contains expanded tax reporting provisions for brokers, covering crypto-assets and digital assets.
Earlier this year, the US Treasury Department published its Green Paper – with the IRS expected to publish information reporting rules in line with the Infrastructure Bill legislation. The proposal will bring foreign holders of cryptocurrency and digital assets into the scope of tax reporting for foreign account tax.
Taina said: “The proposed crypto tax reporting regulations bring more entities, including crypto exchanges and crypto trading platforms, into the ability to perform tax reporting. In addition, accounts that were outside the scope or not considered to be a specified financial account can now enter the documentation- and the reporting requirements for FATCA and CRS.”
According to the firm, the first step for a company is to do some due diligence on its accounts. From here, businesses should confirm that they have good presumption rules where documentation is not available. Obtaining documentation will be necessary to ensure that the reporting takes place under the correct reporting regime, while documentation will identify which reporting requirements the account falls under and whether there are any exceptions to the reporting.
The company concluded: “With the growing number of Crypto accounts or wallet holders, automated compliance processes are key to ensuring compliance with FATCA and CRS requirements. Finally, continuous monitoring for changes will be essential to ensure that FATCA and CRS self-certification forms such as received remain valid. The regulatory framework will only grow from this point, and having systems that adapt and are easy to update is key.”
Find the full post here.
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