Want to Dodge Your Crypto Tax? Learn the Risks From Koinly

Want to Dodge Your Crypto Tax? Learn the Risks From Koinly sponsored

In recent years, the IRS has made one thing abundantly clear – if you make money from crypto, they want their cut. So if you’re underreporting or outright avoiding crypto taxes, be warned: the penalties are steep. Before you take the wrong turn, learn the risks from crypto tax experts, Koinly.

Is cryptocurrency taxed?

The million dollar question – and the answer is a definite yes. Virtually every country in the world requires you to pay taxes on crypto.

The exact tax you’ll pay will vary – but in general you’ll pay either Capital Gains Tax or Income Tax, or both in some cases. You can learn more about how crypto is taxed in your country in Koinly’s crypto tax guides.

What will tax offices know about my crypto?

Now that Crypto has gone mainstream, tax offices are sending a clear message to investors – you can run, but you can’t hide.

As a digital asset, you might think there’s no way your tax office can know about your crypto, but it’s not the case at all. Tax offices including the IRS in the US, the ATO in Australia, HMRC in the UK, and the CRA in Canada are compelling crypto exchanges to share Know Your Customer (KYC) data on demand. This is done to ensure tax compliance and catch taxpayers avoiding crypto taxes.

The IRS in particular have been using the John Doe summons to legally compel crypto exchanges to hand over user data. They’ve already won a John Doe summons against Coinbase, Kraken and Poloniex.

So what happens if you’re caught evading crypto taxes?

Crypto tax evasion in the US

The IRS has identified two types of crypto tax evasion: Evasion of assessment Evasion of payment

The penalties for each type of crypto tax evasion differ.

Evasion of assessment

The most common type of crypto tax evasion is evasion of assessment. Taxpayers who willfully omit income, underreport income, or overstate deductions commit this crime. Examples of crypto tax evasion include: Not reporting capital gains from sales or other disposals. Under reporting capital gains from sales or other disposals Not reporting additional income received in cryptocurrency. Not reporting business income received in cryptocurrency. Paying wages in cryptocurrency without reporting it.

Evasion of payment

A taxpayer who hides assets or funds that could be used for payment of their tax liability is said to be evading payment after a tax assessment has been made. Tax evasion of this nature is less prevalent in the crypto space – but not entirely unknown.

IRS crypto tax evasion penalties

Tax evasion and tax fraud are both federal offenses in the United States. Depending on the severity of the evasion, you can face up to $100,000 in fines ($500,000 for corporations) or up to 5 years in prison. Therefore, if you’re thinking of risking it, don’t.

What if I’ve previously avoided crypto taxes?

The IRS recently updated Form 14457 – the Voluntary Disclosure Practice Preclearance Request and Application – to include a section on reporting virtual currencies. Form 14457 lets taxpayers who may be facing criminal prosecution for violation of tax laws, voluntarily disclose information to the IRS that they previously failed to disclose.

Provided the IRS hasn’t initiated proceedings already, a voluntary disclosure can help you avoid criminal prosecution if you’ve previously evaded assessment or payment.

By making a voluntary disclosure, you agree to cooperate with the IRS and pay any due taxes in full in order to avoid criminal prosecution. Based on the penalties, disclosure is a much better option than a potential $100,000 fine or prison sentence.

Global crypto tax evasion

The IRS isn’t the only tax office cracking down on crypto tax evasion – tax agencies all around the world are doing the same.

In the UK, the penalty for tax evasion can be anything up to 200% of the tax due and up to seven years imprisonment in serious cases. HMRC has just recently seized NFTs for the first time in a suspected tax fraud case.

Tax evasion in Australia is punishable by up to two years imprisonment and a fine of 200 penalty units (around $33,000).

Tax evasion in Canada can result in a penalty of up to 200% of the taxes evaded and a five-year jail term.

How Koinly can help with crypto taxes

Crypto taxes are complicated for many investors due to the lack of guidance from tax offices, as well as the sheer volume of transactions they need to calculate taxes on. But Koinly can help.

Koinly calculates your crypto taxes for you. All you need to do is sync the wallets, exchanges and blockchains you use with Koinly using API or by importing a CSV file of your transaction history. Koinly will then identify your cost basis, identify your taxable transactions and calculate your subsequent capital gains, losses and income – all in one easy to read tax summary (and totally free of charge).

After that, you can download your Koinly tax report to give to your tax office. Koinly offers a huge variety of reports for crypto investors around the world. This includes TurboTax reports, the IRS Form 8949 and Schedule D, the ATO myTax report, and more.

Avoid audits and penalties. Let Koinly do the work for you. Sign up today and see how much you owe!

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