What used to be a tax-free (unintentional) transaction in the past, could now be a taxable event following the recent IRS regulations. In 2014, the IRS issued a set of guidelines regarding crypto taxation which previously was tax-exempt. Without adequate knowledge and understanding of the regulation and its guidelines many users, as well as tax professionals, did not know how to incorporate cryptocurrency into tax returns.
As the famous adage holds there is no escaping death or taxes. Cryptocurrency users are now being closely watched as the IRS sets its eyes on the crypto trading. In this process, the IRS sent 10,000 plus letters last year to crypto traders asking them to review and amend past returns to reflect their crypto trades. Taking it a step further, the IRS also selected numerous returns demanding urgent action on back taxes due to ignored cryptocurrency profits.
In the new 1040 form for 2019, the IRS has incorporated crypto trades as the first question: “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?” This sends a clear signal to the taxpayers that the government has a concrete agenda for taxing profits from crypto trades. In addition, they recently came up with revenue ruling 2019-24 and updated their FAQs for tax professionals.
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