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Texas IRS audit helpVirtual currencies such as Bitcoin and Etherium have become very popular over the last several years, and many people invest in these cryptocurrencies, trade them with others, use them to purchase goods and services, or receive them as income. Because of this increase in financial activity, the IRS has begun to pay more attention to these types of transactions, and it has increased the number of tax audits of people who buy, sell, or exchange virtual currencies. Users of cryptocurrencies will want to understand their requirements for reporting transactions and paying taxes to ensure that they can avoid penalties from the IRS.

How the IRS Addresses Cryptocurrencies

Even though virtual currencies are often used to purchase goods and services, they are not treated the same as currency issued by the United States or another country. Instead, they are considered to be property, and cryptocurrency transactions are taxed the same as those involving other forms of property.

When a person sells virtual currency, transfers it to someone else, or exchanges it for goods or services, they will be required to recognize any gains or losses, and capital gains taxes may apply to these transactions. The gain or loss will be the difference between the amount received in exchange for the virtual currency and the person’s basis in the cryptocurrency. The basis is the amount that was originally spent to acquire the virtual currency, including any fees or commissions. The basis may be adjusted based on certain types of expenditures, deductions, or credits.

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South Texas tax consultant

The usual tax season will be wrapping up soon, but that does not mean that the IRS will not be bothering you. Depending on how your returns look now—and even in prior years—you might find yourself dealing with an IRS tax audit anytime this year. Especially these days with so many people preparing their taxes on their own through apps and other software services, it can be easy to think that you might have made some mistakes on your returns that could call attention to them, raising numerous red flags in the eyes of IRS agents. Here is what you need to know about these audits and how you can avoid them.

What to Know About Tax Audits and How to Avoid Them

When the IRS audits your taxes, they are reviewing your tax returns and financial records to verify their accuracy. They want to check to see if you somehow did not pay the full amount of taxes due to them or if you failed to provide all the necessary and honest information to give them an accurate return. Some important facts to know about the auditing process include:

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