The crypto-mania has expanded throughout the USA and around the globe. As crypto-assets grow to spark the curiosity of investors around the world, they seem to have become prey for scammers looking to make quick cash by duping individuals who will go to any length to make their own version of rags-to-riches.
Avoid Being a Victim of Tax Fraud
Here are five strategies to spot crypto scammers, avoid them, and protect yourself
Check your OS
When paying your taxes digitally, you should use a device that isn’t a Windows computer. When we take a look at all of the IRS frauds, tax scams, and other electronic-based frauds, we see that they’re all aimed at Windows users.
If you’re filling out your taxes on a Windows device, the hackers will change or gain access to the operating system you’re using to steal information and data after you download or click on these files.
Performing all financial transactions on a non-Windows device decreases vulnerability, ensuring that if you are hacked, attackers will not have access to your Social Security number or other sensitive information.
Emails from the IRS
If you ever receive emails from the IRS, do not click on them. The IRS realizes how easy it is to get digital communications hacked, and completely avoids sending emails to taxpayers.
However, a lot of people weren’t aware of this fact and made the mistake of clicking on the links and opening the attachments.
So if you’re wondering about that one time you replied to an IRS email, we’re sorry to say but you actually communicated with a hacker.
Another lame yet pretty dangerous tax frauds are when these fraudsters will mail you a check that appears as if it came from the IRS, expecting that you would sign it with your name and account number on the reverse and submit it.
The sender will acquire an e-copy of your check after it has been deposited, and they’ve now obtained all of your account details.
Snail Mails Sent by the IRS
Only postal mail is sent by the IRS. You must be cautious, though, since we have encountered incidents when people have stopped coming into the office. With so many individuals working remotely because of Covid, it’s critical to keep up with your email and other correspondence.
Anyone with an office should make sure that someone checks the mail on a regular basis. Since the IRS gives all of your codes, once they read them, they will get all of your codes. We all know it’s against the law to open someone else’s mail, but thieves don’t seem to mind and can then mimic you by calling the IRS.
To prevent intruders out of your cryptocurrency wallet, use two-factor authentication. A third party stores the private key on a web server, which may be accessed via an application or website. This is how you should keep your assets.
In this circumstance, your crypto exchange login information is vitally crucial, and establishing two-factor authentication is recommended. It can be beneficial in preventing hacking attempts or if the basic details are exposed as a consequence of an attack.
Now that you know how to keep scammers at bay, we must take a look at the main objective of the blog: understanding how to file cryptocurrency taxes.
How to File Cryptocurrency Taxes
If you’ve dabbled with crypto, one of the most important questions you must be asking is: how to file cryptocurrency taxes?
Even though crypto tax filing can be a tough job, we’ve pointed out the most important aspects of how you can file crypto taxes:
- First thing first, crypto investments result in capital gains taxes, while activities such as mining, staking, and reward collection result in income taxes. So you must keep a record of all your crypto purchases and sales.
- Almost all the cryptocurrency exchanges, such as Kraken and Coinbase, give Form 1099-K and other relevant 1099 documents from the Internal Revenue Service.
- Lastly, you must calculate your capital gains and losses, in order to figure out how much tax you owe to the IRS. In this aspect, you must note that using crypto tax software is the simplest method to calculate your capital gains and losses. Crypto tax software may help you make tax reporting and financial analysis easier while staying in compliance with IRS and SEC rules and regulations.
Here’s a list of the most common tax forms that are used in the United States:
|Form 1040 (Individual Income Tax Return)||Calculates total taxable income|
|Form 1099 K||Report non-employment income to the Internal Revenue Service.|
|Form 8949 (Sales and Other Dispositions of Capital Assets)||Complete summary of all crypto activities like selling, trade, etc.|
|Schedule 1||Your total additional income from crypto activities|
|Schedule D (Capital Gains and Losses)||Summary of your Form 8949 and includes the sum total of short term and long term capital gains|
The Bottom Line
Cryptocurrency has grown in popularity as a financial asset, but cryptocurrency taxation remains a challenging issue. While the IRS has issued updated guidelines, you should make sure you’re updating yourself on how to file cryptocurrency taxes the right way and save yourself from being a victim of tax fraud.
Using the proper software to automate capital gains and losses calculations, as well as consulting with an expert accountant will make sure that you are paying your crypto taxes smoothly.
How to file cryptocurrency taxes?
First thing first, crypto investments result in capital gains taxes, while activities such as mining, staking, and reward collection result in income taxes. So you must keep a record of all your crypto purchases and sales.
Additionally, you must calculate your capital gains and losses, in order to figure out how much tax you owe to the IRS. In this aspect, you must note that using crypto tax software is the simplest method to calculate your capital gains and losses.
Do I need to report to the IRS if I bought cryptocurrency?
Buying and holding cryptocurrency isn’t taxed in and of itself a taxable event. However, when you sell and the profits are calculated, this is when the tax is usually incurred.
What happens if you don’t report cryptocurrency on taxes?
In case you do not record taxable cryptocurrency transactions and are audited by the IRS, you might face fines, interest, and possibly criminal prosecution. It might be termed tax evasion or malpractices.