Reporting Crypto Taxes on FBAR or Form 8938 – A Complete Guide

crypto fbar fatca reporting

Crypto Taxes FBAR or FTCA Reporting 

Paying taxes is your legal responsibility as a citizen of the country, and cryptocurrency is no exemption. So during the tax year, one thing you should remember is to evaluate all of your crypto transactions to know if you owe taxes on cryptocurrency. After that, you then have to report them on your tax returns upon filing to the IRS. Besides that, you also need to check if the transaction you made had incurred gains or losses to know what potential deductions you may qualify for. Hence, if you want to know more about it, here’s a complete guide on reporting cryptocurrency taxes on FBAR or Form 8938

How Should Virtual Currencies Be Reported?

The best thing to do to help make your crypto-related tax filing so much easier is to plan and work on it ahead of time. Don’t wait for the deadline or a few days before it. Instead, you can start gathering all of the necessary information and details to figure out what you owe in every crypto transaction you make. Also, make it a habit to keep records of everything, so it’ll be easy for you to prepare all of your forms and documents upon filing your returns during the tax year. 

Hence, in accordance with the Internal Revenue Service forms and instructions, you should report your crypto capital transactions and sales and calculate your capital gains and losses on Form 8949, Sales and Other Dispositions of Capital Assets. Then, you have to summarize the deductible capital losses and capital gains on Schedule D, Capital Gains and Losses, or Form 1040. 

FBAR Reporting

Under the Bank Secrecy Act, all U.S. taxpayers are required to report all of their qualifying financial accounts abroad to FinCEN or Financial Crimes Enforcement Network. However, according to the regulations of FBAR, it doesn’t define an offshore account with crypto assets as a reportable account. That’s why you don’t need to report your foreign account with crypto assets on FBAR unless it’s reportable under 31 C.F.R. 1010.350 as it holds particular reportable assets aside from cryptocurrency. It means that under the Bank Secrecy Act, you, as a crypto investor, are not required to report your financial accounts offshore as long as they only contain crypto assets. But if these financial accounts contain non-crypto assets and exceed the reporting threshold of the Bank Secrecy Act, you need to report them in your tax returns. 

Penalties for FBAR Violation

If taxpayers failed to file an FBAR, they would surely deal with pretty hefty penalties. When they are proven guilty of committing non-willful violations, they’ll be fined up to $10,000 per violation. On the other hand, if they’ve proven guilty of committing willful violations, the penalty will be up to $100,000 or 50% of their tax balance. If you have undisclosed foreign account, you should consider the IRS Streamlined Foreign Offshore Procedures to avoid huge penalties.

crypto fbar fatca reporting

FATCA Reporting

The Bank Secrecy Act doesn’t only establish the reporting requirements for U.S. taxpayers who have foreign financial assets, including cryptocurrency. It’s because FATCA or the Foreign Account Tax Compliance Act also establishes a set of reporting requirements that apply to all financial assets offshore that exceed the reporting thresholds. Hence, all U.S. residents are subject to FATCA reporting when they own financial assets offshore during the tax year with more than $50,000. But this particular threshold will increase to $200,000 for those U.S. taxpayers living abroad, and it will also double if the married couples will file their tax returns jointly to the IRS. 

However, under the Bank Secrecy Act, the crypto accounts held offshore are not considered foreign financial accounts. But these virtual currency assets held outside the United States may qualify as foreign financial accounts under FATCA. Hence, even though the crypto investors don’t follow the FBAR requirements upon filing, they have to do it with FATCA. 

FATCA Penalties

The FFIs or Foreign Financial Institutions will face a potential penalty of 30% withholding of their income that they earn in the U.S. if they don’t comply with FATCA. However, FATCA is not designed for FFIs, but it is for account holders, such as a person or entity. Moreover, those proven guilty of wilfully not disclosing their foreign financial assets, including cryptocurrency, may deal with a penalty as high as the greater of 50% of their financial assets’ value or a total of $100,000. It means that if the account only has a value of less than a hundred dollars, the penalty will be more than that, especially the penalty will be calculated annually.

On the other hand, if the violation committed was proven to be unwillful, the penalty can be $10,000 for each tax year of noncompliance. But it doesn’t include the additional penalties from the Internal Revenue Service yet for not filing the required forms and documents of the agency on the deadline, which has a maximum penalty of $160,000 for unwillful and $50,000 per tax return for those who have been proven guilty of intentionally committing the violation. On top of that, if you failed to disclose your assets, file your tax returns on time, or report your current status, if these will be determined as a form of fraudulent activity by the IRS, it may result in further investigation and potential criminal penalties. 

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FAQs

Is cryptocurrency reportable on FBAR?

At the moment, the FBAR or the Foreign Bank and Financial Accounts regulations do not consider the accounts with crypto assets offshore as a type of reportable account. That’s why if you currently own a foreign account with crypto assets, you don’t need to report it to FBAR. Unless it holds other reportable assets aside from crypto, you have to report it under 31 C.F.R. 1010.350. 

What is the difference between FBAR and Form 8938?

One main difference between the FBAR and Form 8938 is that you only have to file Form 8938 if you meet the required threshold for filing, and you need to prepare and submit your tax returns. However, if you are not required to file your tax returns and don’t meet the filing threshold, you are not required to file Form 8938 during the tax year either. 

Is Form 8938 the same as FBAR?

Many people believe that the FBAR is new. The fact is that it is not. Form 8938 of FATCA is the one that’s new because it was introduced to the public on the 1040 tax return in 2011. On the other hand, FBAR was introduced to U.S. taxpayers in 1970. FinCEN developed FBAR, and the Internal Revenue Service has enforced it since 2003. So Form 8938 is not the same as FBAR. 

Does FBAR apply to crypto?

If your foreign financial accounts only hold crypto assets, you don’t need to comply with the FBAR requirements. But if these accounts have other reportable assets besides crypto, that’s the time you have to report it to FBAR. 

Do I need to file both FBAR and FATCA for Crypto?

No, you only need to report to FBAR if your foreign financial accounts hold crypto and other reportable assets. If your account only has crypto assets, no need for FBAR reporting, but you still have to report it to FATCA. It’s because, under FATCA guidelines, you have to disclose all of your financial accounts offshore, including your crypto assets, with an aggregate value of more than $75,000 at any time of the year or $50,000 on the last day of the tax year. 

Conclusion

Many people, not just in the United States but also in other countries worldwide, have been earning from crypto investments for many years. So if you’re one of them and you are a U.S. citizen, you always have to make sure that you report and comply with all tax laws mandated by the government in the United States. It’s because as a legal resident in the country, it’s a legal responsibility that you need to fulfill every year.

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