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Tax evasion and cryptocurrency

On Behalf of | Sep 19, 2022 | Federal And State Tax Collections |

Smart business owners do their best to avoid taxes. The IRS considers this perfectly legal, according to their worksheet. However, tax evasion is illegal, which the IRS defines as the failure to pay taxes you owe.

Sometimes the difference between tax avoidance and evasion is not clear. See below for a brief primer on paying fewer taxes without breaking the law.

Tax avoidance

The IRS condones several tax avoidance practices. Probably the most popular method is to save money in retirement accounts like 401(k)s. This effectively allows you to save more money in the long run and pay taxes once you withdraw the money. You also might consider making tax-deductible donations to your favorite charity. However, even these methods might lead to you making a mistake. Always check that you are IRS compliant with your tax avoidance strategies.

Tax evasion through cryptocurrency

Tax evasion comes in many forms. The popularity of cryptocurrency is the most recent and common way people evade their taxes. The IRS considers all transactions with cryptocurrencies as taxable. The IRS treats this as a capital gain when you make a profit through virtual currencies. The short-term capital gains rate is much higher. If you make multiple transactions in a short period, you might owe the IRS a lot of money. Recently, the Internal Revenue Service has cracked down on tax evasion through cryptocurrency, so exercise extreme caution.

The United States does not take kindly to tax evasion. Using legal means to pay fewer taxes still puts you at risk if you are not careful. Make sure you put your money into IRS-compliant tax shelters.