IRS updates crypto question on Form 1040
The Internal Revenue Service (IRS) has proposed an update to a question regarding crypto asked on Form 1040, the tax form required by all US taxpayers to file as part of their annual income tax return.
For the tax year just passed, the question on Form 1040 read as “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
The IRS clarified in their frequently asked questions section on their website that, for 2021 tax returns, if your only transactions involving virtual currency during 2021 were purchases of virtual currency with real currency, you are not required to answer “yes” to the Form 1040 question, and should, instead, check the “no” box.
The newly proposed addition to the Form 1040 now reads: “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)?”. This update presumably aims to more thoroughly cover new types of activity arising in the crypto space. The rewording of ‘virtual currency’ to ‘digital asset’ could be seen as a move to encompass all forms of digital assets including cryptocurrencies, such as NFTs. The inclusion of ‘reward’ and ‘award’ could be read as a nod to the increasing popularity of staking reward programs, and play to earn games.
All in all, this update shows that the IRS is attempting to adapt to the constantly shifting landscape of the crypto industry. While it’s yet to be determined whether the draft will be solidified for use in the next tax season, it can be assumed that more information will be released by the IRS in the future.
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