Cryptocurrency taxes are no longer a problem for young people. This changed the day the US Internal Revenue Service made encryption the control center and added a coding problem in the form of 1040. Unsuspecting parents with dependent children should be on the lookout. Tax authorities are looking for incidents of non-compliance, and coding problems may create a false trap. Failure to comply can sleep in the basements of many careless parents.
As of October 2019, nearly 40 million Americans own some form of cryptocurrency, and the average account value is over $ 5,000. Google Analytics data shows that more than 40% of all cryptocurrency holders over the age of 18 are millennials, and about 17% have recently completed high school. This is the last group that parents should worry about. These numbers correspond to the millions of cryptocurrency holders, pre-college or younger. This creates a potential “crypto trap” for parents who claim in their tax return that young people who understand coding are addicted.
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Most parents report that their children under the age of 18 are addicted, and some state that their children are in college. Parents need to be extra careful during this tax return season, as they may enter into unintentional non-disclosure and non-reporting of the “child’s” income in cryptocurrency.
IRS is watching
Over the past two years, tax authorities have launched a campaign to address cryptocurrency compliance. It is estimated that cryptocurrency users will have a tax difference of $ 25 billion. And since cryptocurrency is taxed as “ownership”, unearned income may arise when addicts trade in cryptocurrencies or buy and sell goods in cryptocurrency.
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An unsuspecting parent might have dependent children who exchange cryptocurrencies, trade cryptocurrencies, buy and sell cryptocurrencies, and earn cryptocurrencies by betting. In such cases, the dependent reported both capital transactions and unearned income – income to be taxed at the parents’ marginal tax rate.
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Unsuspecting parents who aren’t fully aware of Bitcoin (BTC) and other digital assets can’t think of asking their kids about crypto activity. It’s easy to imagine a young man, under the protection of his parents, working with cryptocurrency, without giving his mother or father the details. It does not require more than one mobile phone. And why should young people? They are the group with the least experience and the least understanding of the tax consequences of cryptocurrency for themselves, and even more so for their parents. It’s hard to imagine a young man coming to their parents during tax period and saying “Hey mom and dad, your CPA might want to know my Kraken cryptocurrency.” It’s like a mom and dad who understand decentralized economics, side chains, or cryptocurrencies.
But parents who are addicted should ask their kids about coding activity. Income is a big problem. The tax code provides for “child tax” on unearned income for children under the age of 19 (under 24 years old if a student). The current threshold is only $ 2,200. If the eligible child’s unearned income exceeds $ 2,200, the child tax can be applied to the parent’s marginal tax rate earnings instead of the child tax rate. The tax on children is recorded on Form 8615 Tax on Certain Children with Unearned Income. If the parent does not report the addict’s capital gains in cryptocurrencies in excess of $ 2,200, they do not include taxable income in the tax return.
It is not difficult to imagine the income of a dependent child. At the time of writing, Bitcoin has risen nearly 300% in the past 12 months, and the second most popular cryptocurrency, Ether (ETH), is up 700% over the same period. It can be said that BTC and ETH are very rich for young relatives, with spot prices of $ 37,000 and $ 1,600 respectively, but think of others: DOT Polkadot, number three by market value, has risen more than 300% since December and the price is $ 20. Just. Cardano is ranked 6th by market cap, around $ 0.45 USD and has also gained 700% over the same period. If a son or daughter buys or sells goods in exchange for cryptocurrencies, and the true market value of these goods exceeds the base value, the father and mother may engage in a taxable transaction. At the end of this process, parents may need parental control over their child’s balance.