New markets often offer opportunities even for those with limited investment capital. Cryptocurrency has turned small investors into millionaires and shifted the way that people think about money and investing.
Whether you bought in a specific kind of cryptocurrency years ago and want to trade in while the price is high or you have just started investing in multiple kinds of cryptocurrency as a form of speculation, the opportunity is there for it to be a lucrative investment.
Many people think that the biggest risk that they take with investing is the possible loss of their capital. However, if you are successful and do make money, you need to ensure that you properly claim and pay taxes on your cryptocurrency investments. Failing to do so might put you at risk of serious criminal charges.
The IRS knows all about cryptocurrency
There were certainly a few years in the early days of cryptocurrency trading when people making money off of cryptocurrency transactions had a loophole about claiming that income on their taxes. However, the Internal Revenue Service (IRS) closed that loophole years ago.
The IRS is well aware of cryptocurrency trading and expects those who profit off of cryptocurrency transactions to report that revenue much like they do capital gains for other investments. There are now specific rules for reporting and paying taxes on the income earned through cryptocurrency trading.
If you fail to report the income you make when you sell your cryptocurrency for a profit, you could end up accused of a tax crime. Not only could there be criminal penalties, but you will likely have to repay what you avoided paying in taxes along with substantial penalties and interest.
Knowing the law helps you protect yourself as an investor
Tax mistakes and financial crimes can destroy your career and consume all of the money you have generated through savvy investment decisions. Keeping current on federal tax laws as they apply to your major investments can help you avoid running afoul of tax code due to a mistake or oversight.
Knowing what you must pay and honestly reporting your income can help you avoid a tax controversy with criminal or financial consequences.