Today, money comes in all types and formats. From electronic transfers to traditional green, money and payments can be complex and tedious to track. Failure to keep track of all your assets and file appropriate tax documents can result in tax-related problems, including levies, liens and wage garnishments if you don’t pay taxes in a timely manner.
One form of payment that is becoming more popular in the age of technology is known as bitcoin. Bitcoin is an online method of making payments and investing that is considered anonymous by many users. More and more people are using bitcoin to manage online payments and accounts.
Some people use bitcoin because they feel it’s safer than sharing credit card or bank account information online. There may be some who are taking advantage of bitcoin’s alleged anonymity to hide funds or avoid paying taxes. Intentionally avoiding taxes on any type of income is fraud, even if the income is anonymous.
Many people believe the Internal Revenue Service will be unable to take action to collect bitcoin-related taxes. If no one knows who owns the bitcoin, how can wages be garnished or accounts levied? The IRS can track spending, however, which can result in an audit if spending is at odds with reported earnings. An audit lets the IRS trace spending back to income, which could lead to the bitcoin.
Being upfront about income on tax documents is always a good idea, but mistakes do happen. No matter why you are involved in an audit, if you owe back taxes on any type of income, it’s important to understand your options for legal recourse. There are some actions you can take to create installment agreements or cast doubt as to liability to avoid fines or garnishments.
Source: Forbes, “Bitcoin Is Not Anonymous And Is Always Taxable – Part 2” Cameron King, Jan. 06, 2014