Expert Tax Advice for American Cryptocurrency Holders and Expatriates
Summary:
This article provides tax advice for American cryptocurrency holders and expatriates from several tax professionals. Tips include the possibility of filing for an extension until October 15 without increasing audit risk, the potential to exclude up to $120,000 in wages for U.S. citizens working overseas, how to navigate the foreign earned income exemption and foreign tax credit, and the benefits of specific identification method over the default highest-in, first-out method for long-term cryptocurrency.
Are you up-to-date with your 2023 tax filings? As the tax submission deadline — April 15th — was upon us in America, we sought expert advice for those Americans dealing with cyber money and those living abroad. Robert W. Wood, a tax attorney at Wood LLP, reassures that a request for an extension till October 15 doesn't increase the chances of being audited. This option simply moves the deadline from April 15 to October 15. However, bear in mind that the compromise to pay by the original due date persists, despite the extension. Many wonder if this implies a higher likelihood of an audit, yet no evidence supports this theory. Wood, in fact, suggests that by taking extra time to accurately file returns, taxpayers might reduce their risk of an audit.
Justin Wilcox, a partner at FML CPAs, highlights an advantage for those who spend less than 35 days annually in America and earn overseas. They might be in a position to exempt up to $120,000 from their federal wages, without any mandatory foreign tax payments. While this primarily applies to income tax, you might be exempted from social security tax if employed by a foreign company. There are criteria to qualify for this benefit, such as maintaining a consistent workplace abroad and meeting certain residential requirements.
Taxpayers need to inform the IRS of any crypto trading. The "physical presence" test can be met by spending a minimum of 330 days in a foreign country within a 12-month span. The timeframe does not need to align with the fiscal calendar. The "bonafide residency" requirement, however, demands you to live outside America for a full calendar year.
It's important not to confuse the foreign earned income exemption with the foreign tax credit, advises Crystal Stranger, CEO of Optic Tax. She elaborates that the foreign tax credit balances out American taxes with foreign taxes and is commonly used by both residents and expats. She warns that once you opt for FEIE, you cannot revert to using FTC without forfeiting the right to use FEIE again for a certain period.
Lastly, Tyler Menzer, a CPA, advises caution while using default settings on online tax-preparation software. Due to the use of the highest-in, first-out method, taxpayers might end up paying more taxes while trying to minimize gains. He suggests opting for the specific identification method to sell long-term crypto instead of short-term, higher-taxed crypto, saving between 30-100% of tax compared to short-term assets.
This article serves as a general guideline and should not be considered as legal or investment advice. The views expressed are solely those of the author and do not reflect the opinions held by Cointelegraph.
Published At
4/16/2024 12:50:59 AM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.