IRS – UPDATES ON THE DIGITAL ASSETS QUESTIONS; TAXPAYERS SHOULD CONTINUE TO REPORT ALL DIGITAL ASSETS INCOME
The Internal Revenue Service reminded taxpayers today that they must again answer a digital asset question and report all digital asset-related income when filing their federal income tax returns for fiscal year 2022, just as they did for fiscal year 2021. The term "digital assets" has replaced the term "virtual currencies," a term used in previous years.
For the 2022 tax year, it asks:"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)?"
What is a digital asset? A digital asset is a digital representation of value that is stored on a distributed ledger that is cryptographically secure. Typical digital assets include:
Convertible virtual currency and cryptocurrency
Stablecoins
Non-fungible tokens (NFTs)
Everyone must answer the question: Everyone who files a Form 1040, Form 1040-SR, or Form 1040-NR must check one box, answering "Yes" or "No" to the question about digital assets. The question must be answered by all taxpayers, not just those who engaged in a transaction involving digital assets in 2022.
Check ‘YES’ when you have…
Received digital assets as payment for property or services provided;
Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
Received digital assets resulting from a reward or award;
Received new digital assets resulting from mining, staking, and similar activities;
Received digital assets resulting from a hard fork (a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two);
Disposed of digital assets in exchange for property or services;
Disposed of a digital asset in exchange or trade for another digital asset;
Sold a digital asset; OR…
Otherwise disposed of any other financial interest in a digital asset;
Check ‘NO’ when you are…
A taxpayer who merely owned digital assets during 2022 as long as you did not engage in any transactions involving digital assets during the year or if your activities were limited to one or more of the following:
Holding digital assets in a wallet or account;
Transferring digital assets from one wallet or account you own or control to another wallet or account you own or control; OR…
Purchasing digital assets with US or other real currency, including via electronic platforms like PayPal and Venmo;
This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship.
For more information on this and other topics, please contact Kevin via any of the channels listed below:
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