The onus is on you to file your tax return on time and to make sure that you report everything correctly to the IRS. The experienced tax resolution professionals at Moskowitz, LLP can help you deal with any issues that stem from late or incorrect reporting of digital assets.
The IRS can assess deep penalties for late returns or those in which your taxes are underpaid. If you are proactive, you may be able to qualify for a penalty abatement that can reduce the amount of money that you owe to the IRS. However, you need to address any issues now to show the agency that you are acting in good faith.
The IRS Frequently Changes Crypto Tax Rules
The rules regarding cryptocurrency transaction tax reporting are continuously evolving. The IRS often makes changes that affect how you must report transactions on your tax return. Given the shifting landscape, it is possible that you may make errors in calculating the taxes you owe on crypto profits. Ordinarily, you may be subject to not only back taxes, but also interest and penalties.
Recent IRS changes to crypto reporting requirements may affect your tax return in the upcoming cycle. Your broker will report the gross proceeds of sales. This heightens your own duties, and it shifts much of the burden for crypto tax reporting onto you. Given the ever-changing nature of crypto tax reporting rules, there is a chance that you could make a mistake that results in underreporting of your crypto-related income.
Common Crypto Tax Mistakes That You May Need to Fix
Here are some digital asset reporting mistakes that you may need to address with the IRS:
- Failure to report all transactions
- Misreporting cost basis or holding period
- Mixing personal and business wallets
- Not reporting crypto transactions on a per-wallet basis
Filing your taxes late is also a mistake that will cost you money. You must report all of your tax information by April 15th unless you have received an extension from the IRS. Late filing will result in a failure to file penalty, along with an additional penalty for underpayment of your taxes.
You May Qualify for Penalty Abatement Under Some Circumstances
Even when the IRS assesses penalties, it does not mean that you would ultimately end up having to pay them. The IRS has the discretion to waive penalties under certain circumstances. If you can qualify for penalty abatement, it can reduce the amount of money that you owe to the IRS. Specifically, the IRS may allow penalty abatement in the following situations:
- Reasonable care was exercised, but the circumstances giving rise to the penalty were out of your control
- The IRS made an administrative or procedural error
How to Increase the Chance That You May Receive an Abatement
You do not have the legal right to penalty abatement. The IRS considers the facts and circumstances of your situation in making its determination. You can appeal the denial of an abatement.
Accordingly, when it comes to your crypto transactions, you must show the IRS that you are acting in good faith and doing everything within your power to resolve any potential issues. If you have not yet filed a return, you should do so immediately. The IRS may be more likely to grant an abatement when your return is not greatly delayed.
Then, you should also do the following:
- Catch your own errors and file an amended return before the IRS detects any issues and makes you fix the problem
- Compile evidence that you exercised reasonable care in compiling your initial return
- Save all documentation relating to your initial tax return
- Be proactive in dealing with the agency and provide them with full cooperation.
You should seek help from a tax resolution services professional. They can help you deal with the IRS and seek a penalty abatement.
Contact a Tax Resolution Services Firm Today
When you are dealing with a topic as complex as cryptocurrencies, and you may owe the IRS money, it is vital that you get help from a tax resolution services professional at Moskowitz, LLP. You can schedule an appointment to speak with one of our tax attorneys by filling out an online contact form or by calling us today at 888-829-3325.
