What happens if you do not pay crypto taxes?

If you don’t pay your crypto taxes, you may be subject to fines and penalties from the IRS. The IRS has been cracking down on taxpayers who fail to report their crypto transactions, and they have a number of tools at their disposal to identify non-compliant taxpayers, including data matching with third-party exchanges and service providers. In addition to fines and penalties, failure to pay your crypto taxes could also result in criminal prosecution in some cases.

How is cryptocurrency taxed?

In general, the IRS treats cryptocurrency as property and investment, rather than currency. This means that all transactions, from selling coins to using cryptocurrency to make purchases, are taxed in the same way as other capital gains and losses. It is best practice to consult a tax preparer or CPA for further details.

What is a capital gains tax?

A capital gains tax is a tax that is levied on the profit or gain that is realized from the sale or exchange of a capital asset, such as real estate, stocks, or crypto assets. The amount of the capital gain is the difference between the selling price of the asset and the original purchase price, also known as the cost basis. In the United States, capital gains tax rates are generally lower than ordinary income tax rates, but they can vary depending on the length of time that the asset was held and the taxpayer’s tax bracket.

What is an ordinary income tax?

An ordinary income tax is a tax that is levied on an individual’s taxable income, which is typically based on their salary, wages, and other sources of income. Ordinary income tax rates are generally higher than capital gains tax rates, and they are applied to income that is not considered a capital gain or loss. In the United States, ordinary income tax rates are progressive, which means that taxpayers with higher levels of income are taxed at a higher rate.