Paying Cryptocurrency Taxes in 2022: What Investors Need to Know
Now that tax season is here, many first-time cryptocurrency investors are finding themselves struggling to understand the tax implications of their crypto transactions. Many experienced investors are facing these same struggles as well. If you invested in cryptocurrency in 2021 or prior years, you need to make sure you understand your tax obligations, and you need to meet these obligations if you want to avoid scrutiny from the Internal Revenue Service (IRS). In this article, Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, answers some common questions about cryptocurrency investors’ tax obligations.
Do I Owe Federal Income Taxes if I Invested in Cryptocurrency in 2021?
Simply investing in cryptocurrency does not trigger any tax liability—just like you don’t automatically owe taxes if you buy stock in a company. However, if you realized any gain or loss from cryptocurrency transactions (i.e. you sold or exchanged cryptocurrency during the tax year), this means that you have a reporting obligation to the IRS.
What if I Didn’t Report My 2020 Cryptocurrency Income to the IRS in 2021?
If you failed to report your 2020 cryptocurrency income to the IRS in 2021, this is a mistake that you need to rectify. You cannot simply ignore the fact that you potentially underpaid your federal income tax liability, nor can you simply add your 2020 income to the return you file in 2022. Amending your 2021 return may be an option; but, depending on your individual circumstances, it may also be in your best interests to consider a voluntary disclosure.
How Do I Determine How Much I Owe in Cryptocurrency Taxes?
Determining how much you owe in cryptocurrency taxes isn’t necessarily a straightforward process. In fact, it can be quite complicated if you conducted a large volume of transactions during the year. While cryptocurrency investors may be able to use the “highest in, first out,” or “HIFO,” accounting method to minimize their income tax liability, investors must ensure that they are taking into account all relevant transactions when preparing their annual returns.
What if I Don’t Have a Complete Transaction History or Lost Access to My Account?
Since accurately reporting cryptocurrency tax liability requires a complete transaction history, it can be problematic if you don’t have a complete transaction history or if you have lost access to your account. But, if you find yourself in this scenario, you cannot afford to simply throw your hands in the air. If you are unsure how much you owe the IRS, you will need to work with an experienced tax professional to make sure you meet your obligations under the Internal Revenue Code.
Request an Appointment with Washington D.C. Tax Lawyer Kevin E. Thorn
Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, has significant experience helping U.S. taxpayers with cryptocurrency-related matters. If you need help to make sure you avoid problems with the IRS, you can call 202-349-4033, email firstname.lastname@example.org or inquire online to schedule a confidential consultation.