Approximately three quarters of crypto investors weren’t ready to file their taxes as of late March.
After cryptocurrency adoption hit new speeds in 2021, the tax-filing deadlines related to those budding bitcoin and expanding ethereum portfolios are suddenly coming up just as fast.
And if it’s a tax return that’s getting submitted, the taxman wants either a ‘yes’ or a ‘no’ regarding a person’s crypto activity over the past year. “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?,” asks the IRS’s Form 1040.
For a crypto newcomer, Chandrasekera said “that’s a novel concept. ‘Why do I pay taxes because I never realized any cash?’” “Those going at this alone by hand can frequently miss things,” said Austin Woodward, CEO of TaxBit, which also can track an investor’s cyrptocurrency gains, losses and amass their tax information.
The harm in skipping an extension request is the failure to file penalty, and that’s steeper than the failure to pay penalty. The even greater risk is not reporting crypto holdings at all; that may prompt an audit if and when the IRS learns about the assets, other cryptocurrency tax experts have noted.
If, however, someone let their cryptocurrency sit in an interest-bearing account — a twist on the conventional savings account that gained more prevalence last year — Woodward said the answer would have to be ‘yes.’