Taxes are a constant financial burden. No matter how you earn your income, you have to pay some of that money to the federal government and possibly the state as well. Many adults, especially those with significant income or personal property, would love to reduce what they have to pay in taxes.
One of the ways that people minimize their tax obligations is through careful planning. People buy certain assets or open specific kinds of retirement accounts. Businesses give to charity and reinvest in the company.
For years, people and corporations have used offshore financial accounts to reduce how much property they had to report to the Internal Revenue Service (IRS) for income tax purposes. These days, many people invest in digital currency or cryptocurrency that can be very hard to track. Those with significant cryptocurrency holdings may feel like they have untraceable wealth.
Will either of these strategies help you minimize your current tax obligations?
The IRS closed international banking loopholes
The United States government has international agreements with more than 100 other countries that make international banking far more transparent than it once was.
With the exception of a handful of countries, almost every nation, including Switzerland, will report assets and accounts held by United States citizens to the IRS. You have to report your offshore accounts to avoid tax evasion allegations and penalties.
The IRS is aware of cryptocurrency transactions
While there were a few years where cryptocurrency was so new that the IRS had not implemented a policy about it, those days are long gone. For several years, the IRS has had a specific policy on Bitcoin and similar cryptocurrencies.
Investors who make money by selling coins must report that revenue. Those who mine the coins on their computers must also report the income generated that way. While you may think that blockchain records obscure your risks, the IRS has begun enforcing its income tax rules on those with cryptocurrency holdings.
If you don’t disclose all of your income and assets the way the IRS requires, you could find yourself facing an audit, big tax bills or even criminal charges. Learning about current taxation rules before you file your return can help you avoid mistakes that might seem like good choices.