With tax season upon us, cryptocurrency enthusiasts have a lot to take into account. For one thing, it seems there are some details which most people may not be aware of. Failing to comply with these requirements can lead to a jail sentence, though, so it’s important to keep these things in mind at all times.
It’s Cryptocurrency Tax Season
Filing taxes is always a bit of a difficult task when it comes to cryptocurrencies. It is quite difficult to fill out everything unless one uses specialized software for this specific purpose. Thankfully, there are quite a few tools available to help out in this regard, although that is only the first step to take when it comes to filing taxes.
It seems there is a lot of confusion regarding owning cryptocurrency which is stored offshore. A lot of American cryptocurrency users rely on non-US exchanges for either Bitcoin or altcoins. Any money held abroad must be disclosed to the IRS and the US Treasury. Anyone failing to do so will face a hefty fine and a potential jail sentence as well.
Unfortunately, this poses a big problem for cryptocurrency users. Since users who purchased cryptocurrency for the first time last year may not even be aware of this requirement, it is very possible they will face a lot of repercussions due to this “hidden rule”. As soon as you store over $10,000 worth of cryptocurrency abroad in any form, it must be disclosed in one’s Report of Foreign Bank and Financial Accounts (FBAR).
Additionally, these foreign holdings need to be disclosed on Form 8938, which is how people typically file their taxes with the IRS. Although this sounds like a rather trivial matter, a lot of people tend to forget these things, mainly because they aren’t aware of them. With the IRS defining cryptocurrencies as property, holders will need to pay taxes at their capital gains rate. This also applies to foreign trading platforms, which poses a lot of new questions.
Keep in mind that the FBAR form is required if the foreign financial account exceeded $10,000 at any given time during the previous calendar year. In other words, if the IRS rules foreign cryptocurrency exchanges like Binance being subject to FBAR requirements, if your account exceeded $10,000 at any time during that calendar year you should file Form 8938.
Right now, tax professionals are divided on this front, as it is possible that there is an FBAR requirement. Even so, it does not appear to be mandatory, and the IRS hasn’t issued any guidelines regarding foreign account reporting requirements for cryptocurrency exchanges.
To err on the side of caution, you still have a few days to file Form 8398, whose deadlines is April 15th. If you had a foreign cryptocurrency account in 2017 that exceeded $10,000 it would be smart to file the form. Even if you don’t have the complete information of the exchange or company, partial info will do.
It will be quite interesting to see how all of this plays out for US taxpayers. After all, if that is indeed an official requirement, the IRS direly failed to communicate this vital piece of information. A foreign exchange can be considered a reportable foreign account for FBAR. Now is a good time to talk with your accountant or tax man and see if they can help you file such a document before tax day. It’s not worth risking a jail sentence over; that much is evident.