Crypto and The Regulations Around it?
Cryptocurrency and its regulation is one of the hottest topics in the world currently. Receiving breaking news and updates on the state of cryptocurrency is almost a part of daily life for those involved in the world of .In the midst of all this news coming in it’s quite possible for an individual to look over some really crucial information. Thus, in this post we’d like to direct your attention to one crucial update that may have been lost in the weeds. An update that’s about to majorly change crypto tax reporting in 2024. So, without any further ado, let’s dive straight into it.
- President Biden’s infrastructure Bill makes reporting cryptocurrency transactions exceeding $10,000, in the course of business or trade, mandatory.
- The infrastructure bill will be placed under effect from 1st January, 2024
- The mechanism to report these transactions will be the IRS’ form 8300 which was previously used to report cash payments exceeding $10,000.
President Biden’s Infrastructure Investment and Jobs Act
This major change in tax reporting was brought about due to Biden passing the Infrastructure Investment and Jobs Act, which makes it worth looking into. Specifically the sections that deal with crypto tax accounting for payments exceeding $10,000.
To put it simply, the Infrastructure Bill provides new authority to the US Internal Revenue Service (IRS) and Treasury Department, giving them the power to establish new tax reporting rules for cryptocurrency transactions in the new year. These new responsibilities are designed to help bolster tax enforcement efforts, which will ultimately help regulate cryptocurrency as a form of digital asset. Plus, it’ll help individuals in accounting for crypto assets they or their business owns.
The biggest news to come out of this bill though is that any individual who performs a crypto transaction exceeding $10,000 will be required to report it through the IRS’ form 8300. A move that’s designed to provide more transparency to the crypto market and to give taxpayers greater certainty about their taxable losses and gains related to the transactions of cryptocurrency and other digital assets.
Updates to IRS’ Form 8300
Keeping future implications for cryptocurrency taxation aside for now, let’s look at the more immediate impact of the infrastructure bill to crypto tax reporting by discussing the updates made to the IRS’ form 8300. As we’ve mentioned before, one of the provisions in Biden’s infrastructure bill states that any cryptocurrency transactions exceeding $10,000 must be reported to the IRS. Form 8300 is the mechanism through which this information will be reported.
Previously, form 8300 was used to report cash payments that exceeded $10,000. These included various forms of payments including payments made through currency, traveler’s checks, cashier’s checks and more. The purpose of reporting cash payments that exceeded $10,000 on form 8300 was to help law enforcement track and stop tax evasion, money laundering, terrorist funding and other criminal activities. With the introduction of this bill, form 8300 can now also be used to report any cryptocurrency transactions exceeding $10,000, starting from 1st January, 2024. The infrastructure bill also recognizes individual attempts to bypass this requirement by splitting the larger transaction up into smaller transactions that don’t exceed $10,000.
Thus, to make sure individuals can’t dodge this requirement, the bill explicitly states that in any instances where a transaction is split into smaller payments, the smaller payments will all count as related transactions. Simply put, any attempt to bypass this requirement will be futile, not to mention, illegal.
How and When to File
According to the IRS’ official website, filing form 8300 is mandatory for individuals, organizations, companies, trusts, estates and associations. They’ve defined all of these different entities into one ‘person’ entity.
These persons need only submit reports of these transactions if any part of the transaction occurs within any of the 50 states, the district of Columbia or any U.S possession or territory.
You’re also required to submit the form within 15 days after the date on which the transaction took place. On top of that, a person who submits form 8300 is also required to provide a written statement to each party whose name was included in the initial form before January 31 of the year following the transaction. The statement should contain the name, address and telephone number of your business along with the aggregate amount of the reportable cash or cryptocurrency. Plus, the statement should also inform all parties that you’ve submitted the information to the IRS. This’ll help you steer clear of any potential legal problems associated with the reporting.
The IRS has set up an electronic filing requirement for form 8300 that depends on the number of forms you’re submitting to the IRS in a calendar year. Basically, if you already have to submit at least 10 information returns of one or more types in a calendar year, then you’ll have to submit all your form 8300s electronically as well. Let us explain this with an example, suppose you’re required to file five W-2 forms and five form 1099s during a year. In that case, you’ll also be required to submit/file your form 8300s electronically for that year. However, if the total number of information returns you’re required to file within a calendar year is less than 10, then you won’t be required to file your form 8300s electronically either. You can still choose to do so, but that will be your choice to make.
Penalties for Non-Compliance
The IRS hands out some severe punishments to individuals who don’t comply with these requirements. Entities who don’t report this information or don’t send the written statements can face both criminal and civil charges.
They can even be convicted for a felony of non-compliance, which could result in individuals being fined up to $25,000, corporations being fined up to $100,000, or direct imprisonment for up to 5 years. This is why it is imperative to have proper crypto accounting processes in place and hire a crypto cpa as necessary.
The IRS has also imposed a failure to file penalty for individuals who are required to file their form 8300s electronically but end up filing them on paper. You can save yourself from this specific penalty through a waiver or religious exemption. But, you must mention the term “Waiver” or “Religious Exemption” on top of each page in the form 8300 you’re filing. In the case of a waiver, you must also apply for one from the IRS through form 8508. Avoid these penalties by using crypto tax software or have your crypto accountant use proper payment platforms to reconcile your on-chain activity.
Key Information You’ll be Asked to Provide
While you can read the contents of form 8300 from the IRS’ official website, let us break down the key information you’ll be required to provide in the form.
- Name, social security number (SSN) or taxpayer identification number (TIN) and address of the individual or business receiving the payment.
- Name and contact information of the person making the cryptocurrency or cash payment.
- The specific amount of the transaction along with the date on which it was performed.
- Extra details of the transaction including any goods or services involved.
Implications for Crypto Tax Reporting in 2024
Historically, the IRS has always viewed and treated cryptocurrencies as property, applying general property tax principles on cryptocurrency transactions. However, that approach didn’t bode well for them as multiple studies have indicated that it has actually led to holders of digital assets not paying appropriate taxes on a number of substantial cryptocurrency transactions.
This bill was passed to rectify their mistakes by effectively ensuring that each unit of cryptocurrency traded is recorded as a taxable event. This way, traders can’t find a workaround by converting their cryptocurrency into fiat currency like the US dollar, as it’s now going to be recorded as the sale of one digital asset and the purchase of a fiat currency.
This applies to the appreciation of a specific cryptocurrency as well. For example, if an individual purchases a cryptocurrency for a relatively low basis and then sells it at a substantially higher basis, that appreciation in value will be taxable, depending on how long the individual holds the asset. Of course, the converse in this case is also true. If an individual experiences a loss when selling their digital assets, they can use it to offset other taxable gains accrued in a financial year.
While these new rules for crypto trader tax reporting are designed to bring transparency to the market, and increase the number of tax receipts visible to the US Treasury department, some within the crypto industry believe that these provisions could lead to further regulation of digital assets. And we’re inclined to agree with them.
The world of cryptocurrency is evolving and it’s time for individuals who function within that world to get with the program. Understanding these new rules surrounding form 8300 and cryptocurrency transactions will do just that.
Not only will this help you maintain proper compliance but it’ll also help you retain your financial security. For further questions about form 8300 and about crypto taxation in general feel free to connect with any of our cryptocurrency CPAs at OnChain Accounting for some expert advice on Bitcoin accounting, crypto tax and crypto tax reporting.