The use of cryptocurrency for tax evasion may become prevalent in the future. The American Families Plan, proposed by the U.S. Treasury last week, suggests changes to the reporting of cryptocurrency in income tax submissions. If the plan is approved, businesses and crypto exchanges will be required to register transactions with a fair market value of $10,000 or more with the IRS.
Depositing up to $10,000 is acceptable. However, if you deposit a significantly larger amount, such as $100,000 or more, the bank may be legally obligated to report this information to the federal government.
The report highlights that non-traceable transactions facilitate tax evasion and other illegal activities.
Implications of the Treasury’s proposal are not yet clear. However, it is likely that the approach towards cryptocurrency regulation by policymakers will resemble that of other financial institutions, such as banks.
Regardless of the outcome of this proposal, it is important to maintain up-to-date records of all cryptocurrency transactions or transfers. Currently, the IRS treats cryptocurrencies as properties, subjecting sales and trades to taxes on capital gains or losses.
If you hold cryptocurrency, keeping track of the following throughout the year will simplify tax reporting and help understand the potential impact of other regulatory actions on your cryptocurrency holdings:
– Your cost basis (the amount of money invested in cryptocurrency, regardless of value fluctuations)
– The date of acquisition for each cryptocurrency
– Where your cryptocurrency is held
– Any transactions or transfers made to and from crypto exchanges or wallets
Relying solely on crypto exchanges to provide tax documents at the end of the year is not recommended, as individuals often have cryptocurrency from multiple providers. If you are involved in the crypto industry, it may be beneficial to consider hiring a tax professional or using cryptocurrency-specific tax software when filing your taxes. This will ensure accurate reporting for the current year.