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As 2020’s revised Tax Day approaches, New Jersey taxpayers who bought, sold or used cryptocurrency in 2019 are likely to find that complying with their income reporting and tax payment obligations presents a challenge. Even though the Internal Revenue Service (IRS) has acknowledged that its guidance on cryptocurrency reporting has been less than clear, it has also clearly signaled its intent to target individual and corporate taxpayers that fail to accurately report and pay what they owe. New Jersey tax lawyer Kevin E. Thorn is prepared to answer your cryptocurrency questions to help ensure you are in compliance with the rules and guidelines. Please note that the Internal Revenue Service is actively conducting audits and sending IRS cryptocurrency audit letters in this area.

Cryptocurrency Transactions Can Create Complex Reporting Issues for U.S. Taxpayers

There are numerous aspects to cryptocurrency that present challenges when it comes to calculating taxable income. The IRS has indicated that it considers cryptocurrency to be on par with other forms of property, and this means that virtually all transactions have the potential for income tax implications. However, due to the unique nature of cryptocurrency, there are several complex issues that can arise, and taxpayers must address these issues appropriately in order to avoid triggering an audit or investigation and facing the potential for fines, interest and other penalties.

Do You Know What You Need to Report (and What You Need to Pay) to the IRS?

For cryptocurrency investors, buying, selling, gifting and using cryptocurrency are not the only transactions that can trigger income tax liability. While these types of transactions can be difficult enough to track on their own, various other transactions that are not within investors’ control can trigger income tax reporting and payment obligations as well. For example, the IRS considers “forks” and “airdrops” to be taxable transactions that result in ordinary income.  

Then, there are questions of timing. For example, suppose you bought coins at two different points in the year, and then you sold one or more (but not all) of your coins before the tax year ended. Which coins did you sell? While this might seem immaterial, if you paid different prices for the coins, it can have a significant impact on your cryptocurrency income tax liability.

Contact New Jersey Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group

These are just two examples of numerous issues that cryptocurrency investors are likely to face during the 2020 tax season. If you have questions or concerns, it is important that you speak with a tax lawyer before you file your state and federal returns. To request an appointment with New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, email ket@thornlawgroup.com, call 201-355-8202 or contact us online now.