IRS to Face Record Number of Loss Claims, Says Crypto Accounting Firm
Node40, a developer of bitcoin tax-reporting software, expects the U.S. Internal Revenue Service (IRS) to receive a record number of cryptocurrency-related tax return claims this year, as it predicts that many investors will decide to declare their losses.
Cryptocurrency traders hit by considerable price declines in 2018 now have a strong incentive to report their activities to the authorities, in order to offset their losses against other tax liabilities. However, Node40warns that doing so could have long-term consequences for investors. For example, if an individual reports particularly high losses, they may be questioned about where the money came from to begin with.
“It is clear that, with the huge falls in cryptocurrency markets during 2018, many people will be weighing up whether this is a good opportunity to reveal the losses they have suffered,” said Perry Woodin, co-founder of Node40. “Having not reported their crypto activity up to now though, those choosing to reveal losses this year will need to report their crypto positions every year from now on, giving the tax authorities much better visibility of people’s crypto involvement.”
Reporting taxes based on inaccurate calculations in the U.S. could result in penalties of up to 40 percent and tax courts often place the burden of proof on the individual rather than on the IRS. So it’s important that people who choose to report this year have written records of all transactions they took part in, including accurate gains or losses, as well as proper cost basis assignments. If you use accounting software to generate these documents, make sure that it can recover historical trade activity from all the exchanges and wallets you have ever used.
“There is a lot for individuals to consider when it comes to crypto accounting and their tax returns,” said Sean Ryan, co-founder of Node40. “For example, ‘hodlers’ will have a completely different set of circumstances to traders, while those receiving crypto from forks and then selling will also have a unique situation to deal with.”