- Taxpayers will need to disclose any and all transfers of digital assets.
- The year 2022 is the first year when the phrase “digital asset” may be used on tax returns.
The Internal Revenue Service (IRS) is extending its mandate for citizens to disclose cryptocurrency transactions. A new draught of Form 1040 declares that digital assets would be “treated as a digital asset for federal income tax purposes.”
Digital assets are defined in this year’s publication to include both fungible and non-fungible tokens (NFTs) as well as cryptocurrencies and stablecoins. “Any digital representations of value that are recorded on a cryptographically secured distributed ledger or similar technology” is also included.
Digital Asset Option on Tax Returns
Taxpayers will need to specify on their tax returns whether they obtained digital currencies as money, as a reward, through mining or staking, or from a hard fork. In addition, taxpayers will need to disclose any and all transfers of digital assets, including those made as gifts or sales.
If a taxpayer just owned a digital asset, moved it between their own wallets, or bought it with fiat money like the U.S. dollar, they may say “no.” It specifies that no reporting is required for purchases of cryptocurrency via services like PayPal and Venmo.
The Internal Revenue Service requests that users “not leave [each] question unanswered” and instead choose “yes” or “no” for each option presented. If tax filing is required for digital assets, taxpayers may choose between reporting profits or losses as capital gains or as ordinary income.
The year 2022 is the first year when the phrase “digital asset” may be used on tax returns. The IRS used the term “virtual currency” in the past, but did not go into depth on non-fungible tokens, mining income, or any of the other topics included in this year’s form.