What Happens if I Don't File My Crypto Taxes?

Failing to File Crypto Taxes: What You Need to Know

Failing to file taxes on cryptocurrency transactions can lead to serious consequences, ranging from hefty penalties to criminal charges. If you’ve been trading or earning crypto, understanding your obligations is critical to avoiding trouble with the IRS. Here’s everything you need to know about what happens if you don’t file crypto taxes.

Key Points to Know

The IRS Treats Crypto as Property Gains, losses, and income from crypto must be reported just like stocks or real estate.
Failure to Report Carries Penalties Ignoring your tax obligations can result in fines, audits, or even legal action.

Consequences of Not Filing Crypto Taxes

Failure-to-File Penalties
- Rate: 5% of unpaid taxes per month, up to a 25% cap.
- Example: You owe $2,000 and miss filing for 3 months.
  Penalty = $2,000 × 5% × 3 = $300
Failure-to-Pay Penalties
- Rate: 0.5% of unpaid taxes per month, up to a 25% cap.
- Example: You file on time but don’t pay $2,000 for 6 months.
  Penalty = $2,000 × 0.5% × 6 = $60
Accruing Interest on Unpaid Taxes
- How it works: Interest compounds daily at a rate set quarterly.
- Example: You owe $1,000 and the annual rate is 4%.
  Daily interest ≈ $1,000 × (4% ÷ 365) ≈ $0.11 per day
Audits and Investigations
- Unreported crypto increases audit risk.
- The IRS can issue a “John Doe Summons” to exchanges (e.g., Coinbase) to obtain user data.
Criminal Charges
- Willful evasion may lead to up to 5 years in prison and fines up to $250,000.
- Example: Deliberately hiding $50,000 in gains over several years could be prosecuted as fraud.

How to Avoid Penalties

File Even if You Can’t Pay
- Submitting your return on time avoids the larger failure-to-file penalty.
- You can request an installment plan for any balance owed.
Amend Past Returns
- Correct unreported crypto income by filing an amended return to reduce audit risk.
Use Tax Software
- Tools like Awaken automate transaction tracking, compute gains/losses, and generate IRS-ready reports.

Examples of Taxable Crypto Events

Selling Crypto for Fiat Bought 1 BTC for $30,000 and sold for $50,000 → $20,000 gain.
Trading One Crypto for Another Exchanged $10,000 ETH for $12,000 SOL → $2,000 gain.
Receiving Crypto as Income Earned $1,000 in crypto through freelance work.
Staking Rewards Received $500 worth of staking rewards.

FAQs About Not Filing Crypto Taxes

What if I only had small transactions? All taxable transactions, regardless of size, must be reported.
Will the IRS know if I don’t report? Yes—many exchanges share data with the IRS, increasing detection risk.
Can I negotiate with the IRS if I can’t pay? Yes—installment plans and offer-in-compromise options are available.
Are wallet transfers taxable? No—transfers between your own wallets are non-taxable.
How far back can the IRS audit? Generally 3 years, but up to 6 years for substantial underreporting.

Conclusion

Failing to file crypto taxes can trigger significant fines, interest charges, audits, and even criminal prosecution. By understanding your obligations, filing on time, and leveraging the right tools or professional help, you can stay compliant and minimize your risk.

Disclaimer: This information is for educational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified professional for advice tailored to your situation.