According to accountants, crypto investors who haven’t organized their tax filings before next week’s deadline should consider applying for an extension. If you’re finding it difficult to reconcile your crypto transactions for tax purposes, it’s advisable to file for an extension since time is running out. Those who require additional time must include a payment with their extension, even if the exact amount owed is uncertain.
Taxpayers are reminded that the deadline to file their 2022 tax return or an extension is April 18. The extension allows taxpayers until October 15 to complete and file their returns. As part of its efforts to enhance its monitoring of crypto-related transactions, the IRS has been systematically incorporating additional queries and categories to collect more comprehensive details about taxpayers crypto backgrounds. As a result, traders need to be alert and vigilant.
CPA Advises Crypto Investors to File for Extensions: Tax Day Approaches
The IRS modified the Form 1040 for individual income tax returns in 2022 to explicitly indicate that the term “receiving” cryptocurrency encompasses digital assets acquired through “rewards, awards, or compensation.” The agency also indicated its interest in knowing whether taxpayers have given or received cryptoassets as gifts.
Despite the fact that transferring and receiving gifts are not subject to taxation, traders must still respond affirmatively to this query to comply with the tax authority. It is particularly crucial for crypto traders to take the initiative in addressing their tax responsibilities. Since the majority of wallets and exchanges do not issue any tax documentation at the close of the year, it is the investor’s responsibility to keep track of their transactions as well as their profits and losses.
Filers should also be aware that incorrect disclosure or filing can result in significant expenses. The penalties imposed for various offenses vary, but traders typically face underpayment penalties. These penalties are determined by the delay in payment and the applicable interest rate.
This tax season may be one of the final opportunities for crypto traders to operate within the current system. In future tax years, new regulations are anticipated to take effect, impacting NFT tax classifications and the IRS’s definition of brokers. Therefore, filers should stay informed for any new directives.
The IRS initially inquired about crypto holdings on the Schedule 1 form in 2019, which is not mandatory for all taxpayers. In 2020, the agency included a question about crypto holdings for the first time on the Form 1040, which is a compulsory form for all taxpayers.