When people have concerns about their taxes, specifically in relation to complex areas such as capital gains from cryptocurrency transactions, they often turn to the internet. The web is filled with sources claiming to have the keys to avoiding taxes on crypto gains.
However, the information that these sources provide is often incorrect or even fraudulent. In some cases, the source themselves admits the illegality of their strategies freely. When dealing with the IRS, you should always be sure that all of your filings are fully within the law, which may be complicated if you are getting your advice from social media influencers.
To get real, reliable, and current advice on how to properly file your cryptocurrency gains with the IRS and avoid audits and criminal tax investigations, reach out to the Tax Law Offices of David W. Klasing at (800) 681-1295 or online here to schedule a reduced rate initial consultation.
Tracking taxpayers’ cryptocurrency investment gains is one of the major focus areas of the IRS. To account for the rise of decentralized finance, the federal government has already taken several steps to adjust the tax code to strengthen language that requires disclosure of capital gains from cryptocurrencies.
The growth of crypto trading has also led to a huge rise in a number of resources about how to handle taxes on crypto gains. But, for every seasoned expert offering clarity on how to properly pay taxes on capital gains from crypto trades, there seems to be another dozen people offering sketchy insight into how to dodge taxes. Indeed, platforms like YouTube and TikTok are filled with videos with titles like “Crypto Tax Evasion 101” or “Avoiding Capital Gains on Cryptocurrency,” many of which were posted within the past year and have hundreds of thousands of views.
Take “Nichita Russu,” which is the social media pseudonym of a 17-year-old who publishes content and trades crypto under what he claims is his mother’s name. Russu’s contribution to the platform is a step-by-step guide on YouTube titled "Crypto Tax Evasion 101," which features a thumbnail with antisemitic images and obligatory disclaimers that he is not providing financial advice.
In an important disclaimer, Russu admits he has never done taxes himself (“I’m 17, I never did taxes, but I know you have to report your own taxes”). His guide relies on trying to plausibly deny that you have custody of a wallet. Russu explains that aspiring tax cheats should send money to another wallet and act as if that was the result of a hack.
From there, Russu recommends that crypto tax cheats connect to Tor, swap to ETH, and use the “Tornado.cash” mixing service to anonymously withdraw the crypto and deposit it to another wallet address. Russu explains that cheats can claim they simply found this wallet (how they obtained the private keys might be harder to explain) which happens to have ETH in it and decide to take out a loan against the ETH by using a protocol like Liquity that lets you collateralize crypto holdings.
When one commentator pointed out that a simple audit would uncover this scheme, Russu simply replied that the wallet would get “hacked” again and he would then collateralize crypto held in another token.
All this overlooks the ability of entities dedicated to tracking the laundering of cryptocurrency through forensic analysis of the blockchain. A host of services have emerged over the years with the explicit purpose of tracking the sort of activity that Russu believes have never been considered before by corporations or the federal government.
The internet is a valuable source of information in many different areas, but if you need advice on how to declare your cryptocurrency trading gains and losses in the most advantageous way possible, you will want that advice to be both specified to your situation and legally reliable.
Cryptocurrency is just one part of your tax return. While it may make up a substantial portion of your declaration in some cases, you must be careful to address the entirety of your financial circumstances as required in your return. Incomplete filings will be viewed by the IRS just the same as if you had not filed at all, so if you get just one aspect of your return wrong, you could end up facing massive penalties.
When influencers and others make disclaimers that they are not experts and are not technically providing advice, you should heed that warning. Claiming that you thought you filed correctly because you “saw it on TikTok” is not a valid defense against criminal tax prosecution and penalties.
It is also important that the source of your cryptocurrency reporting advice is current and up to date on the many developments in the Internal Revenue Code. As the government adjusts to the influx of decentralized currency income gained each year, you should expect that tax treatment of these areas will change, as will reporting requirements. If you are getting your advice from a video file, even if the source is reliable, it is possible that legislation has changed since the filming of that video that affects its veracity.
This is why you should always seek out the counsel of a Dual Licensed Tax Attorney and CPA if you have concerns about how to report your crypto gains. We can offer specified advice that fits your exact needs and keep you apprised of all developments in federal tax law that may affect your tax status.
To schedule your first-time case evaluation with our Dual Licensed Tax Lawyers and CPAs, reach out to the Tax Law Offices of David W. Klasing at (800) 681-1295 or online here to schedule a reduced rate initial consultation.