In this situation, your wife will need to amend her tax return to include the income from the sale of bitcoin, as the IRS will likely be notified of the transaction given the issuance of a 1099 form. Here’s what you should do:
Obtain the Correct Documents: Ensure you have the 1099 form associated with the bitcoin transaction. This form details the income that was not reported in the original tax filing.
Form 1040-X: Prepare Form 1040-X, which is used to amend previously filed tax returns. This form should reflect the corrected income, taking into account the sale of the bitcoin.
Calculate Gains or Losses: Determine if there was a capital gain or loss from the sale of the bitcoin. This involves finding out the cost basis (the fair market value of the bitcoin at the time your wife received it) and the sale price. The difference will result in a gain or loss.
Include Additional Documents: Attach any relevant forms or additional documentation to the Form 1040-X, such as Schedule D (for capital gains or losses), to show the details of the bitcoin transaction.
File the Amended Return: Submit the Form 1040-X and any additional documentation to the IRS. Be aware that this might mean owing additional taxes, interest, and possibly penalties, so be prepared to pay those amounts when filing the amended return.
Consider Consulting a Tax Professional: If you’re unsure about how to proceed, or if there are complexities to the transaction that you don’t understand, it may be wise to consult a tax professional or accountant. They can help ensure accuracy and compliance with IRS rules.
Keep Records: Maintain detailed records of all computations and correspondence related to this matter. It’s crucial to have documentation in case of future questions from the IRS.
Addressing this oversight promptly by amending your tax return will help mitigate potential penalties or issues with the IRS.
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