Guest Post | Jan 23, 2023

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A tax audit can be invasive, time-consuming, stressful, and result in an expensive tax bill in the end. The Canada Revenue Agency has stiff penalties, including interest charges, for unfiled taxes once they’re discovered. The CRA can even forward the results of your audit to a Crown prosecutor if they believe there’s a case for tax fraud.

All things considered, it’s just not worth it, and preventing a tax audit is ideal. Unfortunately, governments around the world are targeting crypto investors due to some parties using crypto to avoid taxes or launder money. Everyday investors are winding up in the CRA’s sights.

If you’re a crypto investor, you can minimize your chances of facing a CRA cryptocurrency audit by following these five steps.

#1 Avoid Common Tax Mistakes

Taking a few precautions in your everyday life can go a long way toward avoiding an audit. If you invest in cryptocurrency, avoid these common mistakes:

• Talking to friends, family, or coworkers about your tax situation
• Making large transfers of funds
• Holding offshore accounts
• Making large charitable deductions.

#2 Crypto Tax Planning

Good crypto tax planning can mean many things. At its simplest level, it means keeping track of your transactions. Whenever you buy or sell cryptocurrency, document the price, time, and date of the transactions. It also means understanding whether your crypto transactions are likely to be considered capital gains or business income, as this will change the taxable amount.

More complex tax planning includes things like investing through a corporation, using capital losses to your advantage, and other strategies that allow you to save on your taxes by the book without any inaccuracies.

#3 Get Professional Support in an Audit

If an audit does happen, the best way to handle it is to get professional support from a tax lawyer. Depending on your investments, it can help if they have a better understanding of cryptocurrency, how it’s taxed, and how it works, in addition to general tax laws and planning.

They can provide legal advice and support you when the CRA requires information for its audit.

#4 Have an Advocate Negotiate

Dealing with the CRA can be stressful, but you’re not entirely at their mercy. With the right representation, you may be able to negotiate a compromise with the CRA that works better for you.

One thing that the CRA may do after an audit is propose an amendment to past years’ returns. When this happens, you may want to make your own proposal in light of new information. This can benefit you, and it’s best handled by a legal advocate experienced in dealing with the CRA.

#5 Voluntary Disclosure

Voluntary Disclosure is a unique program that allows you to deal with unfiled taxes from previous years without prompting an audit or other penalties. If you know you have income from previous years that you still owe taxes on, you can adjust those tax returns and pay what you owe through the Voluntary Disclosure Program. It’s a great way to correct past mistakes.

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Be smart about your taxes. If you invest in cryptocurrency, you should take every precaution to accurately report your taxes to avoid an audit from the CRA.

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada’s Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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• Source: https://ncfacanada.org/5-steps-crypto-investors-can-take-to-avoid-a-tax-audit/