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Investors Beware: Cryptocurrency Investments Carry Tax Liability

Investors Beware: Cryptocurrency Investments Carry Tax Liability

Many Americans, led by Millennials and Gen Z, are venturing into the world of cryptocurrency trading, seeing it as a way to get rich quick. While the notion of getting rich overnight is alluring, it is not based on reality.

Today’s unregulated world of cryptocurrency makes trading in it highly speculative. There are many who tout crypto as an exciting new way to invest. Others, like Robert McCauley, in an opinion piece in the Financial Times, say, “bitcoin is worse than a Madoff-style Ponzi scheme.” The truth lies somewhere in-between.

Those who enter into the crypto market expect large profits, although not all crypto investors see big gains. Since cryptocurrency and the blockchain technology behind it are not yet regulated, traders may see one advantage of it is a way to accumulate wealth without paying taxes. That is a fallacy. It should be known that the IRS sees cryptocurrency as property. When regulation does come, it will bring the cross-referencing of Social Security numbers with the amounts of profit. That information will be reported to the IRS and will result in many tax dollars to be collected.

If you are a cryptocurrency trader, waiting for regulation to impose taxes is a very bad idea. Failure to pay those taxes now can result in the accumulation of interest and penalties and might even result in criminal prosecution.




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