The IRS Wants to Change the Crypto Question on Your Tax Returns—Again

Daniella Cressman

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Disclaimer: This information is accurate and true to the best of my knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

"When you file your 2022 taxes, you’re likely to come across a new question about cryptocurrencies right on the first page of your tax return. But it might look a little different than in years past." —Adam Hardy

The IRS added a crypto question to the 1040 tax form for the 2020 tax year.

"The IRS first added a crypto question to the top of Form 1040 — the main federal income tax document almost every taxpayer files — for the 2020 tax year. Previously, the question appeared on the Schedule 1, which is used to report additional forms of income. Now the IRS wants to change the question yet again, according to a new draft of the 2022 version of the 1040 recently published by the agency...The yes-or-no question previously read: 'At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?'" —Adam Hardy

Now, that question could change yet again.

"'At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?' the IRS asks on the draft form." —Adam Hardy

Apparently, this adjustment is due to the confusion many taxpayers felt due to the wording of the 2021 question.

"Some tax experts expressed frustration at the wording of the question on 2021 tax forms, particularly with what 'receiving' crypto meant. Simply buying and holding crypto with regular U.S. dollars is not a taxable event, but they worried the question might lead people to believe it is." —Adam Hardy

For clarification, the federal government treats cryptocurrency as property and it is only taxable in the following circumstances:

  • Selling crypto for profit
  • Earning income from cryptocurrency mining or staking
  • Exchanging cryptocurrency for goods, services, or another type of crypto
  • Receiving crypto through an air drop which is also known as a marketing-related campaign or a giveaway—Be careful: There are a lot of scams out there!

Purchasing cryptocurrency and holding it is not a taxable event. Neither is transferring it between wallets you own.

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