Dealing with IRS and Bitcoin Taxes

Anyone ever had the IRS ask about your bitcoin taxes? Would be cool if you could share your story here to help others out.

A CPA once told me that the IRS sees bitcoin gains as unexpected cash. They don’t have 1099s for it, so they treat it like free money. So if you report it, they’re probably just happy to grab that tax revenue without digging too deep.

When does the IRS even start audits?

You'd probably classify bitcoin gains as miscellaneous income when you cash out. Only what’s converted to fiat counts, not what's still in your wallet. If your mining expenses exceed gains, you can claim a loss too.

They can audit whenever they feel like it. I think the IRS doesn’t have much info on bitcoin yet since most people only started reporting significant gains last year. Before that, it was like whatever to them.

Or you can just report it as capital gains, right? Seems like it’s open to interpretation. There’s a site called bitcointax.info with some useful info.

This thread pops up first for "IRS audit" searches, so here’s a heads-up. There was an alleged IRS crypto audit letter from Feb 2020, right after those soft letters in 2019. Surprised nobody's mentioned it here yet.