Filing crypto taxes is not an option; its’ required by the tax law. If you are still under the impression that the IRS has no visibility into your crypto activity, read “How the IRS Knows You Owe Crypto Taxes” post. Whether you are a self filer or using a professional to file your taxes, this post discusses 3 common crypto tax pitfalls you can easily avoid to stay out of the IRS radar.Not Reporting Anything At All
Although it is very clear that US taxpayers have to pay taxes on cryptocurrency related transactions like sales, crypto to crypto trades, mining, etc, some taxpayers still choose not to report anything at all. This is mainly due to a couple of reasons. First, many people believe that the IRS has no way of finding out their cryptocurrency related activity. However, this is not the case. The IRS can find out about your crypto activity through 1099 reports, subpoenas and Schedule 1.
Second, hardcore crypto enthusiasts believe that taxes mandated by a centralized agency is not compatible with the ethos of the crypto world, which relies heavily on the concept of decentralization. Although there is some validity for this argument, until we get to a purely decentralized world, taxes the way it’s enforced today is essential to maintain the economy. Thus, proper reporting and paying your fair share of taxes is important.
If you do not report anything, you could be subject to several penalties such as late payment, late filing & failure to file. Avoid reporting nothing; at least report something which is better than reporting nothin...