Internal Revenue Service sent new guidance to cryptocurrency holders.
The IRS published two documents (a ruling and a question-and-answer paper) on Wednesday. This is the first guidance since 2014, and it contains information about expected methods of reports about income from cryptocurrencies. This new paper is a result of an increasing interest of auditors to individuals with large crypto investments.
A tax lawyer from San Francisco James Creech supposes that it will encourage people who weren’t in compliance to come into compliance. People soon will realize that they have a lot of paper for digital currencies.
The agency requires taxpayers to track their crypto transactions to demonstrate how much they bought, so they can understand how much they owe when they trade. For proving the IRS that transaction between two accounts (wallets) is tax-free, a crypto holder needs to provide specific documents.
The guidance is a long-standing tax rule includes a requirement that assets held for less than a year are taxed at higher short-term capital gains rates. Those held for longer qualify for the 23.8% preferential rates.
As crypto investments gained popularity and value, the IRS struggles to enforce tax laws on cryptocurrencies. Until this guidance, investors and their tax advisers had relatively little input from the IRS and had to make educated guesses about how to report income and pay taxes from virtual-currency transactions. Some taxpayers didn’t report their transactions at all.