Crypto Taxes
5 min read
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Forgot to Report Crypto on Your Taxes?

Forgot to Report Crypto on Your Taxes?

It’s clear that the IRS is cracking down on crypto tax evasion. Recently, the agency issued a John Doe Summons to Kraken, asking the exchange to identify taxpayers who reached a certain threshold of cryptocurrency activity. 

Increased crypto tax enforcement may present a problem for some investors, especially those who have been unaware that their cryptocurrency transactions carried a tax reporting requirement. 

If you haven’t reported your cryptocurrency on past tax returns, you still have time to submit a tax amendment and reduce your risk of an audit. 

In this guide, we’ll break down a simple step-by-step process for submitting a crypto tax amendment. But first, let’s break down what can happen if you decide not to report your cryptocurrency. 

What happens if you don’t report cryptocurrency on your taxes? 

If the IRS has reason to believe that you’ve committed tax fraud, there’s no limit to how far back they can audit you. Years down the line, investors may be hit with an audit and a tax bill they cannot afford. 

You may be wondering whether your past cryptocurrency activity is even taxable. In most cases, the answer is yes. 

If you were trading cryptocurrency at any point in the past few years, you need to report these transactions on your annual tax return. To learn exactly how the IRS treats cryptocurrency, read through our detailed guide: The Complete Guide to Cryptocurrency Taxes.

How does the IRS know if you have crypto? 

Many crypto investors are convinced that because of the anonymous, decentralized nature of blockchain and crypto transactions, there is no way for the government to see or know that they are making money trading/buying/selling cryptocurrency.

It’s important to keep in mind that blockchains are distributed public ledgers, meaning anyone can view the ledger at any time. Figuring out an individual’s activities on that ledger essentially comes down to associating a wallet address with a name.

The IRS uses data matching to crack down on tax fraud. In the past, the agency has worked with contractors like Chainalysis to analyze blockchain transactions and identify ‘anonymous’ wallets. 

What should I do if I forgot to report my crypto taxes in the past? 

What should you do if you already filed your tax return, but you forgot–or didn’t know you had to–report your cryptocurrency gains on that return? The best idea is to amend your tax return from whichever year(s) you didn’t include your crypto trades. 

You have three years from the date that you filed your return to file an amended return, and the IRS is notoriously more lenient to those who make a good-faith effort to properly pay their taxes.

Step 1: Figure Out How Much You Owe

Calculating your tax liability can be difficult. To do this, you’ll need to know the fair market value of your cryptocurrency at the time of each trade. For traders who have executed hundreds, if not thousands of trades over the years, this can quickly become a difficult task.

If you find yourself in this situation, crypto tax software can help. CoinLedger’s historical price engine can retrieve the fair market value of each one of your cryptocurrency trades in seconds. 

Step 2: Amend Your Return

Once you have determined your tax liability, you should download a current IRS Form 1040X, Amended U.S. Individual Income Tax Return. This form comes with easy-to-follow instructions and requires you to only include new or updated information.

Ammend your tax return cryptocurrency

Step 3: Mail in or e-file your amended return

Once you’ve finished amending your tax return, you can mail it to the IRS. Before sending, you should make sure that you’ve attached all necessary forms and supporting documents. In addition, if your amendment results in a higher tax bill, you should include the additional tax payment with the return. 

Once you’ve submitted your amended return, it’s important to be patient. In usual times, it takes the IRS 8–12 weeks to process your amendment. Due to delays from COVID-19, the IRS states that the process could now take longer than 20 weeks. 

Can I file my crypto tax amendment with TurboTax? 

Do you use software like TurboTax cryptocurrency or TaxAct to report your taxes? You can also submit your crypto tax amendment through these platforms. 

CoinLedger can automatically generate the necessary tax reports that can be imported into either of these platforms — and many others! 

Get started with CoinLedger today 

Looking to submit your crypto tax amendment? CoinLedger can help. The platform automatically integrates with platforms like Coinbase, Kraken, and Gemini, helping you easily generate tax returns from prior years. 

Get started with a free preview report today

Disclaimer: This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.


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