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Cryptocurrency and audits

On Behalf of | Apr 18, 2022 | Cryptocurrency Issues & Audits

Interest in cryptocurrency has long expanded beyond the fringes of technology enthusiasts. Documented reports of people making significant money buying and selling crypto opened doors to the mainstreaming of digital assets. Today, even some traditional and conservative investors add cryptocurrency holdings to their portfolios. Unfortunately, some Georgia tax filers might now discover tax and audit implications for selling crypto.

Cryptocurrency and tax audits

The Internal Revenue Service was somewhat slow to catch up with cryptocurrency traders, even though some traders earned millions. Since crypto transactions may occur anonymously through various wallets, the IRS can’t always track transactions. The lack of 1099s for crypto endeavors doesn’t help the agency either. The IRS has added a question about crypto trading to the 1040 form, but even those who respond honestly and report their gains might face an audit.

There are several possible steps an individual buyer or a business could take when reporting crypto transactions. Keeping detailed and accurate balance sheets could help the cause. Listing the date of purchase and the value on that date logs the initial transaction. Upon selling the asset, logging the sales price and any gain or loss helps establish accurate bookkeeping.

Responding to an audit

Even when a personal or business tax return contains no mistakes or outright false information, the Internal Revenue Service may still conduct an audit. Responding to the audit promptly and providing factual information and response might lead to a positive outcome. Yet, some cryptocurrency audits may end with the IRS imposing a tax burden that might not be accurate.

Appealing the auditor’s decision may reverse the additional assessment. Taking the matter to tax court might be another option. Such steps would require providing compelling evidence that proves the assessment is inaccurate.