U.S. Taxes- you might face big penalties if you don't file FBAR reports
FBAR reports are the filings used to report foreign bank accounts, and most crypto trading platforms host their accounts outside the U.S., and as such these accounts are considered foreign bank accounts. Why is this important? You may be subject to a $10,000 minimum fine if you do not comply!
There is a law called FATCA that is in place to fight money laundering since 2010 that basically was put in place to try and stop money going to terrorists in the post 9/11 world. Most people however, including tax practitioners, don't think to ask about crypto currency trading when determining if the non-US account balances tip the magical $10,000 threshold that means reporting is required.
This $10,000 amount is counted across all non-US bank accounts combined, and if this amount is passed anywhere during the calendar year you are required to file an FBAR report. If you don't file this report you can be subject to penalties of the greater of $10,000 or 10% of the account balance for each year of not reporting.
This isn't the end of the world, however. This is only an informational reporting, meaning that the IRS won't tax you on the amounts you report. So with the penalties it is wise to file.
You can file online at: https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html
In addition to FBAR reporting, if your balances were over $50,000 at any point during the year you may have form 8938 filing requirements. This form is attached to your tax return and a little more complex to fill out. Info is available here: https://www.irs.gov/businesses/corporations/do-i-need-to-file-form-8938-statement-of-specified-foreign-financial-assets
If you are just filing for 2017 you are fine and can probably do this yourself easier than having anyone help you with it. If you haven't filed in previous years there are some options where you can avoid penalties with a few different amnesty program choices. I will do a later blog on these options, but I don't want to get too complicated here.
Please hit me up if you have any questions and hope this helps... And FYI I'm for the most part not taking new clients, just want to help people out.
Awesome post! I'll likely have to file this next year, so it's good to know.
That $10,000 fee is kind of insane. That's way more damaging to those with less, which are more likely to be the ones who aren't aware of this issue. They're in effect confiscating all of your money just because you didn't tell them about it. That's kind of extremely messed up.
There might also be an issue with the amount. Say you had half a bitcoin. It hit $20k at one point. Would you have to declare that? Even if you didn't sell it at that point? It would only be worth a bit over $5500 now.
Yes, you would have to report it, as it is the highest balance that counts. On the plus side though there would be no tax due in that case, just reporting requirement.
The only exception I would think is if you only had accounts at the US brokerages, like Coinbase and GDAX. I think an argument could be made that this is US source accounts, especially as they have to report it to the IRS now per the subpoena. In the lawsuit they were only asking for info on people with over $20k in transfers or trades though, so that is who will likely get audited in the next year or so. Still you pretty much have to trade on foreign exchanges if you want to play with anything other than BTC, ETH and LTC... Still though it is safer to report even this account as there is no tax liability, just reporting requirement, and I prefer to overreport on FBAR just to safeguard against those outrageous $10k penalties!
I would argue that you're not actually holding anything in an exchange. It's just a number they keep track of for eventual withdrawal. It only becomes a value on withdrawal. That's how you can make quick trades, and avoid larger fees.
What they actually see it as though is another matter.
Bittrex is based in the US, and lets you trade in many different cryptos, including Steem, which is why I use it. It's a little slow at times though, since it's browser-based.
I haven't used Bittrex because I am trying to only trade mobile as I spend my whole day staring at a computer screen already... My friend showed me an app yesterday that might fix that though, so might be in the future.
Also, it could be argued by the IRS that any crypto currency is essentially a foreign account and thus should be reported: https://www.goldinglawyers.com/fbar-bitcoin-2017-2018-important-cryptocurrency-reporting-tips/
If they try that, it will likely end up in at least one huge lawsuit.