What Happens if I Don’t File My Crypto Taxes?

In a simple scenario, you do not have to report crypto activity if you haven’t sold. Let’s say you purchased one Ethereum for $1,500 and hold it as a long-term investment. This is not in itself taxable, and you would only need to report gains or losses after you’ve sold.

That said, there may be situations in which you receive crypto as a form of income, in which case you must report this income even if you haven't sold the cryptocurrency. For example, if you earn interest on your cryptocurrency holdings, receive staking rewards, participate in an airdrop, or receive cryptocurrency as part of your salary, this must be reported as income and will be taxed at the going tax rates for cryptocurrency.

Yes. Per the IRS, US-based taxpayers must report gains or losses and income from all cryptocurrency transactions, regardless of the amount. The $600 reporting threshold only pertains to earned income from staking, rewards, or other activity which triggers exchanges to file a 1099.

There is no reporting threshold for individual US-based taxpayers, so even if you earn $599 in staking rewards during a given year and don’t receive a corresponding 1099, you must report this to the IRS.

A common question among those new to crypto is “what if I don’t report taxes on crypto,” including losses? Not reporting crypto losses can result in missed deductions against future capital gains, inaccurate tax filing resulting in penalties, fines, or increased IRS scrutiny, and an increased likelihood of an audit.

We strongly recommend reporting all crypto activity, including income and capital gains and losses, to avoid potential legal and financial consequences of underreporting.

If you forget to report crypto on your taxes, it's crucial to address it promptly. The IRS has intensified its focus on crypto tax enforcement, and failure to report may result in penalties, interest, and even criminal charges. You can amend your returns using Form 1040-X to rectify omissions. It's better to file late than not at all, and delaying further may increase the risks and consequences associated with non-compliance.

It's best to assume the IRS has complete transparency into your crypto activity. Crypto exchanges, including Crypto.com, are legally obligated to share customer data. If you've undergone a know-your-client process with exchanges like Binance.US or Coinbase, the IRS can track and associate your crypto activity with you.

To avoid potential complications, accurately report all crypto gains in your annual filings and work with a crypto tax professional to clarify your tax situation.

The safest approach to this question is to assume the IRS has complete transparency into your crypto activity. Crypto exchanges are legally obligated to share customer data with the IRS. If you’ve completed a know-your-client process with an exchange like Binance.US or Coinbase, the IRS can easily track and associate your crypto activity with you.

In short, it’s best to assume the IRS has ways to associate your crypto transactions (including DeFi) with you personally and determine if you’re failing to claim your crypto activity in your annual filing properly.

Any exchange operating in the United States is required to report to the IRS. To do this, they collect users’ personal information to comply with know your customer (KYC) regulations. The IRS has issued John Doe Summons to request this information from exchanges like Coinbase and Kraken.

Numerous exchanges operating in the US issue 1099 forms to their customers and the IRS, including Coinbase, Kraken, Gemini, Crypto.com, Binance.US, Robinhood, and PayPal.

Failure to report crypto won’t necessarily trigger a crypto tax audit. Still, the IRS may consider it a red flag, and therefore, it’s likely to increase your chance of being audited.

The IRS audited roughly 0.6% of personal and 0.97% of corporate returns between 2010 and 2018. While the odds of an audit may seem low, taxpayers should do everything possible to avoid triggering one. This means reporting crypto accurately on your tax returns every year.

To amend your tax return and include previously unreported cryptocurrency transactions, follow this three-step process:

Step 1: Calculate Your Tax Liability - Begin by determining your tax liability, which involves assessing your cryptocurrency-related capital gains and income for the tax year. Leverage software like ours at TokenTax to simplify this process.

Step 2: Complete Form 1040X - After ascertaining your tax liability, download the current version of IRS Form 1040X, the Amended US Individual Income Tax Return. This form comes with straightforward instructions, and you should only include new or revised information relevant to your cryptocurrency transactions.

Step 3: Mail or E-File Your Amended Tax Return - Once you've successfully amended your tax return, you can mail it to the IRS or e-file it. Before submission, double-check that you've attached all essential forms and supporting documents. Moreover, if your amendment leads to a higher tax obligation, include the additional tax payment and your return.