Operation Hidden Treasure: Cryptocurrency And Your Taxes
Cryptocurrency has become an incredibly popular way to invest, but the tax side of this virtual coin can be difficult to navigate. The IRS has viewed it as an attempt by many people to hide earnings and money from the IRS.
In March of 2021, the IRS announced Operation Hidden Treasure to crack down on cryptocurrency reporting. If you’ve bought and/or sold cryptocurrency recently, it’s essential to declare your crypto correctly on your tax forms to avoid tax fraud and tax evasion charges.
Here’s what you need to know.
Before we jump into it, if you know you owe IRS back taxes on your crypto gains, it’s important to reach out to a tax law firm like ours that is skilled in negotiating back tax debt with the IRS. We can help you get back in compliance while potentially negotiating with the IRS on your behalf. Contact us today for a consultation.
What Is Operation Hidden Treasure?
Operation Hidden Treasure is a joint effort by the IRS Civil Office of Fraud Enforcement and its Criminal Investigation Unit (notice that I bolded this for a reason). You can expect in the future that the IRS and Justice Department will be announcing convictions. This operation is designed to search for unreported income from cryptocurrency.
Operation Hidden Treasure has trained agents to examine the blockchain in order to find signs of tax evasion. Blockchain is the digital ledger that tracks your cryptocurrency mining and transactions. IRS agents look for tax evasion signatures which are signs that make it easier to detect further fraudulent activity. An example of a tax evasion signature is “structuring,” which means to literally structure transactions in increments of less than $10,000 to avoid certain reporting requirements. Other examples are the use of “nominees,” “shell corporations,” or “getting on and off the chain.”
Crypto users have tried different ways to skirt reporting requirements, and the IRS is in hot pursuit of unreported crypto. The IRS is also collaborating with European law enforcement agencies to tackle international fraud.
How To Protect Your Assets
The IRS considers virtual currency to be property similar to gold rather than money, and it is taxed accordingly. If your only crypto transaction this year was purchasing crypto with US dollars, then that does not need to be reported, according to Question No. 5 in the IRS FAQ on their website. However, if you sold your crypto or you traded your crypto for any goods or services, then that does need to be reported.
When you sell your crypto, keep track of its value when you purchased it, and its value when you sold it. If you are going to have crypto, then REPEAT AFTER ME: I will keep documents and records to be able to prove the value of my crypto - both when I purchased and sold it and documents that prove what I paid for it when I bought it and what I received when I sold it or bought something with it. (No bad record-keeping, instead hyper-vigilant record-keeping is what you must do.) While crypto and the IRS can both be murky subjects, your transparency is the key to protecting your financial assets from future tax audits. For you to get ready for the upcoming tax season, you need to get your portfolio organized. That is especially critical if you currently own any crypto or owned any crypto in the past year. Operation Hidden Treasure is out there looking under every rock and tax return.
Need Tax Relief?
If you do get in trouble with the IRS and they claim you owe $10,000 or more, reach out to our tax law firm, and we’ll schedule a confidential consultation to explain your options in full to resolve your tax problem permanently.
Eight Ways to Get Ready for Tax Season and Avoid a Back Tax Problem
The holidays are just around the corner. Not to be a grinch but right around the holidays is a less fondly anticipated time of year - TAXES!! Before you know it, you will be taking down the Christmas tree, pulling down the holiday lights, and getting ready for the next tax season.
Tax season is a lot less fun than the holiday season (pumpkin pie, cookies, and candy vs. tax forms - a no-brainer - as well as the religious significance of Christmas!). However, these two times of the year do have one thing in common. Just like the holidays, tax season requires lots of preparation and planning, and if you want to be ready, you need to start early.
Why am I writing this article? We don’t prepare returns for a living. It’s not to spoil your holiday cheer. The reason is we’ve seen what it’s like when you’re not prepared. We help people who fall behind on their taxes and owe the IRS tens of thousands of dollars in back taxes. They often owe a lot of taxes because they failed to prepare, and they procrastinated on their taxes.
If you do get in trouble with the IRS and they claim you owe $10,000 or more, reach out to our tax law firm, and we’ll schedule a confidential consultation to explain your options in full to resolve your tax problem permanently.
So if you don’t want to end up owing the IRS a ton of money, here are eight ways to get ready for tax season and reduce your stress level as this annual ritual approaches.
#1 Organize your records.
Now is the time to drag out last year’s tax return, pull out your most recent pay stub, and get organized before the season starts.
#2 Settle any back taxes you might owe.
If you have years of unfiled returns or have a tax issue for anything besides the current year, you should get this looked at before the upcoming tax season. When April 15th comes around, your accountant is likely swamped with returns, and they’ll pay less attention to your back tax debt. We recommend reaching out to a professional tax law firm like ours that handles complicated tax debt cases all year round. Advanced planning can help make you eligible for some forms of tax relief you may not be eligible for right now.
#3 Defer bonuses and incentive pay.
If you’re going to owe taxes, it might make sense to defer getting paid so you can lower your taxable income. If you can, you might want to defer any bonuses and incentive payments. You can also defer payments from retirement accounts and IRAs to save on current-year taxes.
#4 Look for additional deductions.
Now is the time to make those last-minute donations to charity, so start writing those checks and gathering up those household goods. Be sure to get a receipt and save your canceled checks so you can substantiate your charitable giving if a question should arise later. (If you give household items to a charity like Goodwill, make sure your receipt has on it itemized what you gave to them. I’ve had charities hand me a blank form that didn’t list any of the items I gave.)
#5 Expand your education.
Not only can taking a class to improve your business or career prospects and help you get ahead, but that additional education could also lower your tax bill. You might qualify for a generous tax credit or take a good tax deduction for investing in your future. (Reminder - it must be related to your current skills for your job or business, not to qualify you for a different trade or business.)
#6 Up your retirement savings.
The end of the year is the perfect time to increase your 401(k) contributions and make your annual IRA investment. Maxing out your 401(k) and IRA contributions is one of the best ways to reduce your tax bill while saving for the future.
#7 Sell your losers and let your winners run.
If you have substantial capital gains in your stock portfolio or crypto portfolio, selling your losers could lower your tax bill. You can use those losses to offset your capital gains and save money on your taxes.
#8 Estimate your income for tax planning.
You will not know the exact amount of income you received until all your documents are in, but you can estimate your compensation and start some advanced tax planning. This can be key in preventing back tax debt since you won’t be blindsided by a large tax bill come April 15th.
Tax season will be here before you know it, and now is the time to get ready. You do not have to wait until April to start your tax planning, and the sooner you get started, the sooner you can put this unpleasant task behind you.
Bonus Reason: If you fail or failed in the past to organize your records to prepare for tax season, don’t think you are qualified to handle your tax problem when one arises. DIY is organizing your records so that you do not blotch the job. If you didn’t organize your records, it’s a tell-tell sign you need professional help. Not planning in advance is another sign, too.
Need Tax Relief?
If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, and we’ll schedule a no-obligation confidential consultation to explain your options to resolve your tax problem permanently.