Tax Planning For Crypto Dallas

Whether you’re being audited due to your crypto, or your investments are simply complicating the process, the goal is to prove that you filed your tax returns correctly and paid the appropriate amount.

Here’s how the cryptocurrency audit process works:

• The IRS will request records to validate the information on your tax returns. This can include paychecks, bank statements, and receipts for any expenses you claimed.
• In the case of a cryptocurrency audit, you’ll also need a detailed report of your trading history for the years in question.
• The audit examiner’s main objective is to ascertain whether you reported correctly and paid the correct tax amount.
• At the end of your audit, they will calculate the amount owed. Collections won’t begin immediately, and you do have the option to appeal. 
• If, during your crypto audit, the IRS finds reason to suspect you intentionally tried to conceal funds or commit a tax crime, they may forward the case to the Criminal Investigations Division or the Department of Justice for criminal prosecution.

Common triggers for a cryptocurrency audit include:

• Failing to report crypto on your tax return
• Omitting certain exchanges or wallets from your return
• Miscalculating your capital gains or ordinary income

Many digital asset exchanges report some information about your activity to the IRS. If your tax return doesn’t match, you could get flagged. This holds true even if you lost money or made minimal gains.

Once the IRS starts receiving Form 1099-DA from crypto exchanges, we expect that cryptocurrency audits will dramatically increase.

A typical audit covers your last 3 years of tax returns. However, during the audit process, if the IRS finds grounds to believe you’ve underreported by at least 25%, they can go back 6 years.

If you’ve held crypto for several years and haven’t always reported it correctly, there’s a chance this might happen to you.

For example, suppose you’re undergoing a crypto audit covering the years of 2017, 2018, and 2019. When the IRS examiner examines your records for 2017, they notice that some coins were sold. They ask when you first acquired those coins, and you inform them you bought the coins in 2014. 

If you didn’t report any cryptocurrency before 2017, the IRS examiner may now have reason to believe that you’ve significantly underreported your taxable income. The years of 2014, 2015, and 2016 may then be opened up to an audit, as well.

If the IRS believes you’ve committed tax fraud, there is no statute of limitations for the audit. They can go back as far as they like in such cases.

As we mentioned above, most IRS examiners don’t even know what Bitcoin is—let alone how it should be reported. You need a tax lawyer on your side who:

• Knows how to navigate the audit process
• Can build a precise crypto tax report (even when you may have lost keys or if you used a now-defunct exchange)
• Knows digital asset tax law inside and out to defend your reporting methods

A crypto tax report is a meticulous accounting of every single trade—including timestamps of when you bought and sold, the initial amount you spent on the coin, and how much you sold it for. This information is applied to calculate your capital gain or loss for each transaction. 

There are other factors to consider, too: Long-term gains and short-term gains are taxed at different rates. Some crypto is counted as income and must be reported separately. 

Creating an accurate crypto tax report can be an arduous, time-consuming process. Do not assume the IRS will put in the effort to determine the correct amount owed for you!

We’ve assisted hundreds of clients in creating crypto tax reports for past years, even if they don’t have complete records or have lost access to old wallets. We know the law comprehensively, so we can create crypto tax reports that withstand the most stringent IRS scrutiny.

Numerous crypto clients haven’t reported because they’re afraid they cannot pay the taxes they owe on crypto gains.

What most people don’t realize is that the audit process is concerned only with determining the amount you owe. You do not need to pay your full tax bill immediately after the cryptocurrency audit is complete. 

You can set up a payment plan with the IRS. There’s virtually always a payment plan or resolution option that works for our clients and satisfies the IRS.

You can even appeal your crypto audit results! Our tax attorneys are licensed in US Tax Court, so we can appeal your audit decision to the highest levels.