Bitcoin, Tax Records And The IRS: The Truth Behind This Triangle

We all know that cryptocurrencies are relatively new, and so is their legislation in terms of filing taxes from the profits. However, tax records are not a new thing. In fact, since the dawn of the income tax, IRS has controlled the process in every possible market and industry.

 

However, cryptocurrencies changed a lot of that. Since they are completely decentralized and kind of ‘secret’, they are difficult to track. On top of that, the large numbers of people placing the increasing reliance on cloud services and similar types of records makes the entire process even more difficult. There are talks about IRS investigations, enforcement as well as audits.

 

Simply put, the income tax system was designed for centralized transactions – and the decentralized nature of Bitcoin and other cryptocurrencies wrecked it. At this point, it is not clear whether the IRS will apply different standards to cryptocurrency records. However, people need to be precautious and file their tax records in the same way.

 

This basically means that as a cryptocurrency holder, the burden is always on you to keep the right documentation and do the bookkeeping. For example, if an exchange suddenly goes out of business and disappears, you may not be able to get your records. This is why having a solid backup system of your own can make sense. In other words, you should try to keep all the good records of your trading and investment activities such as the dates, amounts and other details of those dispositions.

 

In the end, a lack of a receipt may not prevent you from claiming a tax deduction – or even prevailing in court if you end up in a conflict with the IRS. However, keeping your records and receipts is one of the best ways to sleep safe and know that you have things documented and in the right place.