With cryptocurrency taking an inflated role in the financial mainstream in recent years, ensuring that you remain compliant when it comes to the industry is becoming increasingly vital.
In a recent post by Taina Tech, the company underlined developments in the crypto tax industry over the past couple of years and why it is becoming increasingly imperative to ensure you are reporting tax on the asset.
In 2021, the Internal Revenue Service placed the cryptocurrency tax reporting question on the Form 1040 asking ‘at any time during 2020, did you receive, sell, send, exchange or acquire any financial interest in any virtual currency?. This meant that taxpayers could no longer claim they were unaware that they were supposed to report tax on crypto.
If those completing these forms fail to file an 8949 form, this could lead to your account being audited by the IRS, with failure to report cryptocurrency tax activity potentially being considered tax evasion or fraud.
In addition to this, both the OECD and the IRS are expected to publish crypto information reporting changes in 2022. These crypto tax changes will increase the calculation and taxation of transactions in crypto and digital assets. While taking on different approaches to reporting, they will expose taxpayers to the taxing authority, thus identifying the taxpayer.
In other areas of legislation, in August 2021, the US Senate passed the Infrastructure Investment and Jobs Act, which carries expanded broker tax reporting provisions, which cover cryptoassets and digital assets.
Earlier this year, the US Treasury published its Green Book – with the IRS anticipated to publish rules for information reporting in line with the legislation from the Infrastructure Bill. The proposal would bring foreign holders of cryptocurrency and digital assets into the scope of Foreign Account Tax Compliance Act tax reporting.
Taina said, “The proposed crypto tax reporting regulations brings more entities, including crypto exchanges and crypto trading platforms, into scope for executing tax reporting. Additionally, accounts that were out of scope or not deemed to be a specified financial account may now come into the documentation and reporting requirements for FATCA and CRS.”
According to the firm, the first step is for a company to do some due diligence of their accounts. From here, businesses should confirm they have good presumption rules where documentation is not present. Collection of documentation will be required to ensure that reporting is done under the correct reporting regime, while documentation will identify which reporting requirements the account falls under and if there are any exemptions to the reporting.
The company concluded, “With the growing number of Crypto accounts or wallet holders, automated compliance processes are key to ensuring compliance with the FATCA and CRS requirements. Finally, ongoing monitoring for change is going to be crucial to ensuring that FATCA and CRS self-certification forms received remain valid. The regulatory framework will only grow from this point and having systems that adapt and are easy to update are key.”
Find the full post here.
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