Small Cryptocurrency Players Not In IRS Crosshairs
The IRS is setting their sights on cryptocurrency.
Last month I wrote about letters the IRS was sending out to more than 10,000 taxpayers who are also holders of virtual currencies. (See: The World Of Virtual Currency Is About To Get Real IRS Scrutiny). Now, I want to put some of your fears to rest. I know many people who’ve been bitten by the cryptocurrency bug. It is a fascinating new world that invites exploration. The fact is you can dabble in this new world in fractions. A single Bitcoin currently trades at around $10,000. However each Bitcoin can be split into 100,000,000 pieces! So you can buy fractions of a Bitcoin to see how cryptocurrencies work.
Like everything else, there are people who literally dabble and are considered small time players. Of the more than 30 million accounts that Coinbase, the largest U.S. broker for cryptocurrencies claimed in 2013, fewer than 1,000 e-filed federal income tax returns between 2013 and 2015 reported transactions that involved virtual currencies. Does that mean that the rest of those account holders who didn’t report were small players? Chances are that is not the case and the IRS knows it.
The good news is that the IRS is more interested in individuals and businesses that are involved in much larger virtual currency transactions than the majority of transactions. According to Coin Metrics, a virtual currency data provider, 60% of global Bitcoin transactions are typically for less than $600. If that’s you, then relax, the IRS isn’t going to be coming after you. So keep exploring and experimenting but keep an eye on your transactions. If they go above $600 for the year, you’ll want a record and you’ll want to make sure you let Uncle Sam know.