In the largest update to federal cryptocurrency reporting guidelines since 2014, the IRS recently issued new Bitcoin tax guidance for business entities and individuals. Taking the form of FAQs, the updates, which were released earlier this October, clarify and expand upon several issues that were not adequately addressed in the original guidelines – notably, the tax treatment of income derived from “hard forks,” which occur when a blockchain network (i.e. public Bitcoin ledger) is altered so radically that the blockchain divides, resulting in the creation of new currencies like Bitcoin Cash or Bitcoin Gold. For more information about hard forks (and what they mean for your tax bill), explore our cryptocurrency archives, or consult our Bitcoin tax lawyers for personalized, one-on-one assistance. Otherwise, continue reading to learn about the new IRS Bitcoin guidelines for taxpayers, including key points about hard forks, “airdrops,” and whether the resulting income is taxable.
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In 2014, the Internal Revenue Service unveiled its first set of cryptocurrency guidelines – which, in the intervening years, have been criticized for their lack of specificity (notably by TIGTA in a 2016 report). In a classic case of “better late than never,” the IRS has finally issued new and improved guidelines, which, fortunately, are more explicit than their precursors. Some highlights from the updated guidelines are discussed below.
The IRS’ latest guidelines offer clearer, more detailed terms and provisions than the previous versions, making it somewhat easier for taxpayers to comply with the law successfully. However, as the rules continue to complexify and evolve, taxpayers are advised to consult with a cryptocurrency tax attorney. Working with a skilled tax lawyer ensures that you receive the latest and most up-to-date regulatory information, while simultaneously providing you with protection in the event of a Bitcoin-related tax audit or IRS criminal investigation. You should also have legal representation if you are contacted by the IRS regarding another taxpayer, such as a former employer or spouse.
At the Tax Law Office of David W. Klasing, we are highly experienced in the specialized areas of cryptocurrency tax compliance and Bitcoin audit defense. Whether you have received an IRS letter about unreported cryptocurrency, are concerned about potential Bitcoin-related tax evasion charges, or would like to appeal an unfavorable Bitcoin tax determination following an IRS audit, we provide award-winning service throughout California, 24/7. Contact us online today to arrange a reduced-rate consultation, or call the Tax Law Office of David W. Klasing at (800) 681-1295.
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