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In Albuquerque, a city increasingly recognized as a technological hotspot, the allure of quick, substantial returns on Bitcoin investments captivates many. This vibrant city’s dynamic economic landscape and growing tech sector make cryptocurrencies an emerging area of interest. But make no mistake: this evolving financial frontier is squarely under the federal tax radar of the IRS. Many residents, swayed by the promising returns of digital assets, are risk-averse and often overlook the complex federal tax liabilities tied to their crypto activities. Such negligence can lead to the distressing arenas of high-risk IRS tax audits and, exponentially worse, federal criminal tax evasion charges.
Understanding federal tax responsibilities when dealing with Bitcoin and other virtual currencies is essential for staying on the right side of the law. Contrary to popular belief, these digital assets are federally taxable, often in multiple ways. Whether buying, selling, or simply holding cryptocurrencies, the IRS expects you to correctly identify, classify, and report them. This could mean recognizing your digital assets as capital assets or taxable as ordinary income subject to self-employment tax, or some combination of both. Failing to adhere to these requirements can lead to severe civil and criminal tax penalties. At the tax law offices of David W Klasing, our seasoned dual-licensed Bitcoin and Virtual Currency Tax Attorneys and CPAs offer premier advisory services in this complex federal tax landscape and rigorously defend our clients against IRS underreporting tax allegations, consistently leading them to successful civil tax resolutions.
If the complexities of virtual currency and its federal tax ramifications are on your radar, our Albuquerque dual-licensed Attorneys and CPAs are at your service. We are happy to provide a reduced rate initial consultation, which you can arrange by calling our offices at (800) 681-1295 or by clicking here to schedule online.
Bitcoin as Federally Taxable Income in Albuquerque: What You Need to Know
The rise of Bitcoin and other cryptocurrencies has opened new avenues for income generation in Albuquerque. Whether you’re involved in mining, employed in a job that pays in Bitcoin, or running a business that accepts Bitcoin payments, understanding the associated federal tax implications is not just beneficial, but necessary.
Federal Tax Considerations for Bitcoin Earnings
The Bitcoin you earn may be considered federally taxable income under specific circumstances, such as:
- Mining Operations: Earnings derived from mining Bitcoin;
- Employment Compensation: Wages paid in Bitcoin;
- Freelance or Independent Contracting: Income received from freelance or independent contract work in Bitcoin and
- Business Transactions: Revenue generated from accepting Bitcoin for goods or services.
It’s important to stress that even if you don’t receive a W-2 or 1099 form, you are still legally required to report this income for income tax purposes. For any uncertainties, it would be wise to consult our qualified dual-licensed Bitcoin and Virtual Currency Tax Attorneys and CPAs in Albuquerque well before any tax filing deadlines. Contact us at (800) 681-1295 or click here to schedule a reduced rate initial consultation online.
Identifying Taxable Events
Understanding what constitutes a “taxable event” is the first critical step in your cryptocurrency transactions. These can include:
- Selling or Trading Cryptocurrency: Converting Bitcoin into U.S. dollars or exchanging it for other cryptocurrencies;
- Goods and Services Transactions: This includes both making payments in Bitcoin for goods and services, as well as accepting Bitcoin as payment if you’re a business owner;
- Investment Income: Earning investment income from your holdings in cryptocurrencies.
While a cryptocurrency transaction may qualify as a federally taxable event, this doesn’t automatically obligate you to pay federal income taxes. Nevertheless, it does mandate that you report the transaction to the IRS to evaluate potential federal tax implications. To determine whether federal taxes are owed on a cryptocurrency transaction, you’ll need to consider several factors:
- Basis in the Cryptocurrency: Essentially, this is what you initially paid for the asset;
- Value at the Time of Sale: This refers to the market value of the cryptocurrency at the time the transaction occurred;
- Holding Duration: This is the time you’ve held the cryptocurrency before the transaction.
From a legal standpoint, successfully navigating the federal tax requirements surrounding cryptocurrency isn’t just about knowing your numbers; it demands an intricate understanding of the Internal Revenue Code, a mastery over the specific federal tax forms you’re obligated to file, and the acumen to assess whether you might be subject to interest or tax penalties due to late filings. You may face significant civil or criminal federal tax challenges if you haven’t kept meticulous records of your cryptocurrency transactions. Let’s be clear: the absence of records, inadvertent or intentional, does not exempt you from your reporting duties or from potentially owing taxes to the IRS.
Let our experienced dual-licensed Bitcoin and Virtual Currency Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing be your guiding light. We offer a comprehensive range of services designed to help you meet your federal tax obligations head-on, from providing a detailed understanding of the relevant legal provisions to assisting in the timely and accurate filing of necessary tax forms. Contact us at (800) 681-1295 or click here to schedule a reduced rate initial consultation online.
How to Report Income in Digital Assets to the IRS
When reporting digital assets like Bitcoin on your taxes, a slew of IRS forms come into play, and knowing which form to use can get complicated. If you reside in Albuquerque and have made transactions in Bitcoin or other cryptocurrencies, here’s what you need to know:
IRS Forms for Capital Gains and Losses:
- IRS Form 8949: This form is crucial for calculating the profit or loss from your digital asset transactions. The form must be filled out detailing each transaction, and the summary is then included in your annual federal tax return;
- Schedule D (Form 1040): After completing Form 8949, you must transfer the information to Schedule D, which explicitly summarizes your capital gains or losses. In essence, Form 8949 provides transaction-level details, while Schedule D gives an overall view of your gains or losses for the year;
- Form 709: This form is used in cases where digital assets were obtained through gifting or awards.
Reporting Wage Payments in Cryptocurrency
If you are employed and receive your salary in the form of digital assets like Bitcoin, you need to disclose the value of these assets as part of your wages. This is usually reported on Form 1040, Schedule 1, under “Additional Income and Adjustments to Income”.
Ordinary Income and Additional Forms
- Form 1040-SS: This form is for residents of U.S. territories or individuals with self-employment income who need to report Social Security and Medicare taxes, including those earning self-employment income in cryptocurrencies.
- From 1040-NR: This form is for non-residents of the United States to report U.S.-sourced income, including income generated from cryptocurrency transactions.
- Schedule 1 (Form 1040): Form 1040, Schedule 1 contains the following question: “At any time during ____ (year), did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” If you answer yes, you must report your crypto transactions in the tax return. If you answer no, you signal to the IRS that you have nothing to hide in this area. However, if the IRS feels differently (or already knows differently), you will face high-risk federal tax audits, stiff penalties, and additional taxes. Further, the IRS might view the erroneous “no” answer to the question as a willful act of tax evasion, which might leave you facing criminal charges that can carry jail time.
If you have not engaged in any buying or selling activities with Bitcoin within the year, you most likely don’t have to declare it unless some other “realization event” occurs. However, if you hold digital assets in offshore accounts, you may be subjected to Foreign Bank Account Reporting (FBAR) guidelines.
Why Should I Trust the Tax Law Offices of David W. Klasing?
If you find the intricate federal tax reporting requirements for Bitcoin and other digital assets overwhelming, you’re not alone. At the Tax Law Offices of David W. Klasing, our team excels in navigating the complex federal and international tax regulations associated with cryptocurrencies. Our expertise provides essential guidance for anyone navigating the complex landscape of federal taxation as it applies to cryptocurrency. Our services include:
- Identifying Taxable Transactions: Utilize our extensive experience to determine which of your Bitcoin or other cryptocurrency transactions qualify as federal taxable events;
- Assessing Federal Tax Liability: If you’ve participated in transactions deemed taxable, our team can determine whether you have a federal tax obligation and provide an accurate estimate of what you owe;
- Risk and Compliance Review: For those who have overlooked the federal tax filing requirements related to cryptocurrencies, we can guide you through the process of becoming tax compliant while assessing potential civil or criminal tax penalties involved;
- Proficient Filing and Amendment Services: Whether you’re preparing a new federal tax return that includes cryptocurrency activities or need to amend an existing one, we ensure that all your submissions are meticulously accurate;
- IRS Tax Audit and Criminal Tax Defense Representation: If you are faced with a high-risk IRS tax audit or under investigation by the clandestine IRS Criminal Investigation Division, our team offers robust legal representation to protect your interests, ensuring the case is resolved without leading to criminal tax prosecution;
- Negotiation and Legal Strategy: Should you find yourself in challenging circumstances, we can negotiate federal offers in compromise and deferred prosecution agreements on your behalf;
- Proactive Tax Strategy Development: Beyond immediate tax concerns, we provide strategic guidance to help you mitigate future federal tax liabilities related to your cryptocurrency investments.
David’s renowned expertise is now accessible in Albuquerque at our appointment-only satellite office, merging legal and federal tax services under one roof—and at a unified hourly billing rate. We’re thrilled to unveil a flexible scheduling alternative where you can secure a four-hour flat fee meeting across any satellite location. David W. Klasing, an instrument-rated private pilot, will personally pilot the firm’s sleek and efficient Cirrus SR22 directly to any of our satellite locations to engage with you in person. This tailored service has been crafted with our clients in mind, ensuring no supplementary travel expenses are added to your invoice. Contact us at (800) 681-1295 or click here to schedule a reduced rate initial consultation online.
What if I Received a Letter from the IRS About My Unreported Cryptocurrency Transactions?
If not appropriately handled, this can quickly result in an eggshell audit or a federal criminal tax investigation. Many cryptocurrency traders are shocked to learn that their exchanges of one type of crypto for another were taxable in the year of the exchange. With the massive rise in the market in 2017, followed by the collapse in 2018 and beyond, many investors are finding themselves with substantial federal tax liabilities without the value in their remaining portfolio to cover the taxes owed. Many traders are shocked to learn that the IRS may have obtained their information from a John Doe summons of Coinbase or another cryptocurrency brokerage. We have extensive experience dealing with all facets of crypto, including air drops. Keeping your cryptocurrency offshore creates tremendously more exposure. Lastly, we are well-versed in assisting investors who held crypto with brokerages that have either ceased operations or were shut down, and we understand the intricacies of such situations.
Note: As long as a taxpayer that has willfully committed federal tax crimes (potentially including non-reported cryptocurrency transactions) self-reports the federal tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation/prosecution, the taxpayer can ordinarily be successfully brought back into federal tax compliance and receive a nearly guaranteed pass on federal criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
A letter from the IRS regarding unreported cryptocurrency does not automatically make a voluntary disclosure unavailable.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney-Client Privilege and Work Product Privileges that will prevent the very professional that you hire from potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys and Kovel CPAs, our firm provides a one-stop-shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and net worth. See our Testimonials to see what our clients have to say about us!
In addition to our fully staffed 19,700 square foot penthouse office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) California-based satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad, and Sacramento. We also have satellite offices in Las Vegas, Nevada; Salt Lake City, Utah; Phoenix, Arizona, Albuquerque, New Mexico,Austin Texas, Washington DC, Miami Florida and New York New York that solely handle Federal & California Tax issues.
Our Albuquerque, New Mexico office is conveniently located at:
500 Marquette Ave NW Ste 1200
Albuquerque, NM 87102
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