• The IRS has released a list of reporting requirements for US citizens dealing with cryptocurrencies.
• Taxpayers need to answer questions about digital asset income when filing federal tax returns.
• Checking “Yes” is necessary when receiving, earning, transferring or selling cryptocurrencies (including mining and staking) for any monetary benefit.
IRS Reminds Taxpayers of Crypto Income Reporting Ahead of 2022 Filing
The Internal Revenue Service (IRS) — an enforcement agency of United States federal tax laws — has released a list of reporting requirements for US citizens dealing with cryptocurrencies and other digital assets ahead of the deadline for filing the 2022 federal income tax return. The question about digital asset income features in three forms: 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, the U.S. Nonresident Alien Income Tax Return.
Questions Regarding Digital Asset Transactions
All US taxpayers must answer the following question regarding their digital asset transactions: “At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” A taxpayer needs to check “yes” if they received any monetary benefit from activities such as receiving, earning, transferring or selling cryptocurrencies (including mining and staking).
Checklist Provided by IRS
The IRS provided nine instances when one must check “Yes” on their taxes: receiving virtual currency as payment for goods/services; exchanging virtual currency for other property; disposing of virtual currency; buying goods/services using virtual currency; trading virtual currency on exchanges; exchanging one virtual currency for another; receiving crypto from an employer as part of wages/salary; generating crypto via cryptocurrency mining operations; and earning crypto via cryptocurrency staking operations.
Tax Implications
Eligible taxpayers who have checked “Yes” are required to enter details such as type(s) of virtual currencies involved in the transaction(s), fair market value at the time received/transferred/sold/traded/gifted etc., amount paid in USD to acquire it and other related details on their tax returns. Depending on these factors and other applicable conditions such as whether it was done as an investment activity or business activity etc., capital gains may be applicable if there was an increase in value since its purchase date up until the time it was sold or exchanged etc., which may be subject to taxation depending on its classification under US law – either short-term capital gains tax rate applies if held less than one year before being sold or exchanged OR long-term capital gains rate applies if held more than one year prior to sale/exchange etc..
Conclusion
It is important that all eligible taxpayers accurately report their crypto-related profits on their 2022 federal income tax return due April 17th 2023 in order to remain compliant with IRS regulations.