Accounting firm NODE40, which specializes in calculating digital currency earnings and developer of Bitcoin tax reporting software, expects the U.S. Internal Revenue Service (IRS) to send out a record number of cryptocurrency-related claims as it believes many investors will decide to declare their losses.
Cryptocurrency traders, hit by significant price declines in 2018, now have a strong incentive to report their activities to authorities to offset their earnings against other tax obligations.
However, Node40 warns that this could have long-term consequences for investors. For example, if a taxpayer reports particularly large losses in the financial markets for securities or digital assets, he may be questioned to determine the origin of the original funds invested.
Tax reporting based on inaccurate calculations can result in penalties of up to 40 percent, and tax courts often leave the burden of proof of innocence on the individual rather than the IRS. It is therefore important that people who choose to report digital losses this year have a record of all the transactions they have been involved in, including the exact gains or losses and the correct exchange rate differences.
In addition, the new bill on taxation of transactions with digital assets comes into force only from January 1 next year. If in 2018 digital transactions are equated to the “exchange of similar assets,” then the nuances of taxation that emerge will be different for traders and holders.
This must be taken into account when preparing a tax return taking into account the taxpayer’s digital assets.
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