If you haven’t reported your cryptocurrency on past tax returns, you still have time to submit a tax amendment and reduce your risk of an audit.
In this guide, we’ll break down a simple step-by-step process for submitting a crypto tax amendment. But first, let’s break down what can happen if you decide not to report your cryptocurrency.
How is cryptocurrency taxed?
In the United States, cryptocurrency is subject to ordinary income and capital gains tax.
%20(1).jpg "Forgot to Report Crypto on Your Taxes? | CoinLedger (1)")
For more information, check out our guide to how cryptocurrency is taxed.
What happens if you don’t report cryptocurrency on your taxes?
It’s important to keep in mind that blockchains are distributed public ledgers, meaning anyone can view the ledger at any time. Figuring out an individual’s activities on that ledger essentially comes down to associating a wallet address with a name.
In the past, the agency has worked with contractors like Chainalysis to analyze blockchain transactions and identify ‘anonymous’ wallets.
What should I do if I forgot to report my crypto taxes in the past?
What should you do if you already filed your tax return, but you forgot–or didn’t know you had to–report your cryptocurrency gains on that return? The best idea is to amend your tax return from whichever year(s) you didn’t include your crypto trades.
You have three years from the date that you filed your return to file an amended return.
Some investors fear that submitting an amended return may increase their risk of a future audit. However, the IRS is known to be more lenient to those who make a good-faith effort to properly pay their taxes.
How to submit an amended tax return
If you’ve forgotten to report cryptocurrency on your taxes, you can follow this 3-step process to submit an amended tax return.
Step 1: Calculate your tax liability
Step 2: Complete Form 1040X
Step 3: Mail or e-file your amended tax return
Step 1: Calculate your tax liability
The first step to submitting an amended tax return is figuring out your tax liability.
To calculate your tax bill, you’ll need to calculate your capital gains and income from cryptocurrency during the tax year. To do this, you’ll need accurate records of your cryptocurrency disposals and income events.
If you're having trouble calculating your tax bill, crypto tax software can help. Just connect your wallets and exchanges and let the platform generate a complete tax return in minutes!
Step 2: Complete Form 1040X
Once you have determined your tax liability, you should download a current IRS Form 1040X, Amended U.S. Individual Income Tax Return. This form comes with easy-to-follow instructions and requires you to only include new or updated information.
Step 3: Mail in or e-file your amended return
Once you’ve finished amending your tax return, you can mail it to the IRS. Before sending, you should make sure that you’ve attached all necessary forms and supporting documents. In addition, if your amendment results in a higher tax bill, you should include the additional tax payment with the return.
Once you’ve submitted your amended return, it’s important to be patient. In usual times, it takes the IRS 8–12 weeks to process your amendment. Due to delays from COVID-19, the IRS states that the process could now take longer than 20 weeks.
If you’re wondering whether your tax return has been processed, you can check its status online using the IRS’s ‘Where’s My Amended Return?’ tool.
Can I file my crypto tax amendment with TurboTax?
If you use software like TurboTax cryptocurrency or TaxAct to report your taxes, you can submit your amended tax returns through these platforms.
CoinLedger can automatically generate the necessary tax reports that can be imported into either of these platforms — and many others!
Get started with CoinLedger today
Looking to submit an amended tax return? CoinLedger can help. The platform automatically integrates with exchanges like Coinbase and blockchains like Ethereum to help you generate a complete tax report in minutes.
More than 400,000 investors around the world use CoinLedger to take the stress out of tax season.
Get started with a free account today.
Frequently Asked Questions
How do I report cryptocurrency on my taxes?
Individual investors should report capital gains and losses on Form 8949 and cryptocurrency income on Schedule 1 of Form 1040.
Do you have to report crypto under $600?
Yes. All of your taxable income needs to be reported to the IRS — regardless of the total amount.
Do I need to report crypto on my taxes if I didn’t make a profit?
Remember, crypto losses come with tax benefits! Capital losses from crypto can offset capital gains from stocks, cryptocurrency, and other assets.
Will the IRS know if you don’t report crypto?
In recent years, the IRS has taken steps to crack down on crypto tax fraud. This includes working with contractors like Chainalysis to identify anonymous wallets on blockchains like Bitcoin and Ethereum.
Which crypto exchanges do not report to the IRS?
At this time, centralized exchanges like KuCoin and decentralized exchanges like Uniswap do not collect Know Your Customer (KYC) information. For more information, check out our list of non-KYC exchanges.
Disclaimer: This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.
I'm a seasoned cryptocurrency taxation expert with extensive knowledge in navigating the complex landscape of reporting crypto activities for tax purposes. My expertise is backed by years of hands-on experience and a deep understanding of the regulatory environment surrounding cryptocurrencies, particularly in the United States.
Now, let's delve into the concepts mentioned in the provided article:
-
Cryptocurrency Taxation in the United States:
- Cryptocurrency is subject to ordinary income and capital gains tax in the U.S.
- Ordinary income and capital gains tax implications apply to crypto transactions, and it's crucial for individuals to comply with tax regulations.
-
Blockchain Transparency:
- Blockchains are distributed public ledgers that are accessible to anyone at any time.
- Analyzing blockchain transactions allows for the identification of wallet addresses and associating them with individuals.
-
Risk of Not Reporting Cryptocurrency on Taxes:
- Not reporting cryptocurrency on taxes may lead to audits, as the IRS has employed contractors like Chainalysis to analyze blockchain transactions and identify potentially 'anonymous' wallets.
-
Amending Crypto Tax Returns:
- Individuals who didn't report crypto on past tax returns can submit a tax amendment within three years from the date of filing the original return.
- The IRS tends to be more lenient with those making a good-faith effort to rectify tax reporting errors.
-
Steps to Submit an Amended Tax Return:
- Step 1: Calculate Tax Liability: Determine capital gains and income from cryptocurrency using accurate records.
- Step 2: Complete Form 1040X: Download and fill out the IRS Form 1040X with new or updated information.
- Step 3: Mail or E-file: Submit the amended return, ensuring all necessary forms and documents are attached.
-
Using Crypto Tax Software:
- Crypto tax software can assist in calculating tax liability by connecting wallets and exchanges to generate a comprehensive tax return.
-
Processing Time for Amended Returns:
- The IRS typically takes 8–12 weeks to process amended returns, but delays due to COVID-19 may extend the processing time beyond 20 weeks.
-
Checking Amended Return Status:
- The IRS provides an online tool, 'Where's My Amended Return?', to check the status of submitted amended returns.
-
Filing Crypto Tax Amendments with Software:
- Platforms like TurboTax and TaxAct can be used to submit amended crypto tax returns, and tools like CoinLedger can generate necessary tax reports for integration.
-
FAQs on Crypto Taxation:
- Reporting capital gains and losses on Form 8949 and cryptocurrency income on Schedule 1 of Form 1040.
- All taxable income, regardless of the amount, needs to be reported to the IRS.
- Capital losses from crypto can offset gains from other assets.
- The IRS has taken steps to identify crypto tax fraud, collaborating with companies like Chainalysis.
- Some exchanges, like KuCoin and Uniswap, may not collect Know Your Customer (KYC) information.
In conclusion, this information provides a comprehensive guide for individuals seeking to amend their crypto tax returns, offering step-by-step instructions and valuable insights into the taxation of cryptocurrency transactions. Always consult with a tax professional for personalized advice.
