As the last date for filing income tax returns approaches, the Internal Revenue Service (IRS) has reminded taxpayers to also report income from virtual currencies while filing their returns. The IRS has warned tax payers of serious consequences for non filing.
As per the IRS guidelines for reporting digital asset gains, virtual currency, also known as digital currency, is treated as property for U.S. federal tax purposes. General tax principles applicable to property transactions apply to transactions using virtual currency.
IRS noted that, “There are currently more than 1,500 known virtual currencies. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.”
IRS has warned those who fail to report such transactions saying they can be audited and possibly become liable for interest and penalties. They could also be subject to criminal prosecution in more extreme situations such as tax evasion and filing a false tax return.
According to IRS, tax evasion can lead to a prison term of up to five years and a fine of up to $250,000, while filing a false return can lead to a prison term of up to three years and a fine of up to $250,000.
IRS also clarified that virtual currency payments to service providers and independent contractors are taxable. Similarly, wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes.
Third parties who collect virtual currency on behalf of merchants from their customers are required to report payments to those merchants. The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer, IRS said.
by RTT Staff Writer
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