The deadline for filing a tax return or requesting an extension for 2022 is April 18. Taxpayers who need more time should include a payment with their request for an extension.
Accountants urge cryptocurrency investors who aren’t prepared for the upcoming tax deadline to file for an extension.
According to Shehan Chandrasekera, head of the tax strategy at CoinTracker,
“If you’re still struggling to reconcile your crypto activity and filing taxes, at this point, I would encourage you to file for an extension because time is running out,”
April 18 is the cutoff day for submitting your 2022 tax return or requesting an extension. Filers who want an extension must provide money along with their request; the entire liability amount need not be paid, but some form of payment must be made.
The additional time allows filers till October 15 to complete their forms.
The IRS has consistently worked to tighten its oversight of cryptocurrency activities, introducing additional inquiries and classifications to collect more data about filers’ precise crypto history. Accordingly, traders need to exercise caution, said Chandrasekera.
The IRS revised Form 1040, the individual income tax return, in 2022 to make it clear that “receiving” cryptocurrencies includes getting digital assets as “rewards, awards, or compensation.” The IRS stated that it also wants to know if taxpayers gave or received gifts of crypto assets.
Despite the fact that giving and receiving presents are not taxed, Chandrasekera stated that traders must nevertheless respond “yes” in order to be in conformity with the tax office.
He stated that cryptocurrency dealers need to be particularly proactive in taking care of their commitments. The investor must keep track of transactions, profits, and losses because the majority of wallets and exchanges do not offer tax forms at the end of the year.
“We saw in 2022 that a lot of people had losses,” notes Chandrasekera. “People think ‘I just had losses like I don’t need to report them,’ but actually, if you do have losses, you should also report them.”
Chandrasekera stated that traders shouldn’t disregard losses since they can sometimes be used to lower taxable earnings or even offset income taxes.
Filers may incur additional costs as a result of incorrect disclosure or filing. Depending on the infraction, various fines are computed differently, however, merchants are frequently subject to underpayment penalties. According to Chandrasekera, these penalties will depend on how late the payment is made and how much interest is imposed.
One of the last tax seasons when cryptocurrency dealers would still use the same method is maybe this one. Future tax years are anticipated to see changes to NFT tax categories and the IRS’s definition of brokers, so filers should keep a watch out for new instructions.
The IRS first inquired about cryptocurrency holdings on the Schedule 1 form in 2019, even though it is not a requirement for all taxpayers. On Form 1040, which is required of all taxpayers, the IRS began inquiring for the first time in 2020 about cryptocurrency holdings.