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- 1 IRS modified the crypto tax reporting policies and added new forms and regulations.
- 2 Individuals with trades of over $10K or more need to register on a compulsory basis.
The Internal Revenue Service (IRS) on January 22, 2024, alerted crypto owners to fill in digital asset questions and document all digital assets-related wages. Just like crypto holders did for their 2022 federal tax returns, an individual should file their 2023 federal income tax return. Furthermore, the constant updates showcase the improved focus of the IRS on cryptocurrency taxation.
What Modifications Did the IRS Make to Crypto Tax Reporting Rules?
In the year 2021, the crypto taxation rules were totally new for digital asset holders. At the time, users needed to answer queries regarding the deposit or purchase of any digital assets. Additionally, all these queries are transferred to Form 1040, the US Individual Income Tax Return.
In 2022, the IRS made the guidelines and rules clearer to the crypto community by describing the digital asset queries. Revision of Form 1040 was done by the IRS, inquiring if taxpayers had sold, received, gifted, or exchanged any of the digital assets.
With time, the IRS is continuously widening its crypto tax reporting laws while also broadening the digital asset inquiry. For 2023 tax reporting, the queries were enhanced and added to a wider range of forms including 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, 1120, and 1120S.
The new update mainly concentrates on two factors related to acquiring digital assets and selling, swapping, or otherwise disposing of digital assets in 2023. While filling out the form, individuals should reply to the questions with “Yes” or “No”.
Moreover, in the press release, the IRS provided complete guidelines on how to answer and report digital asset income.
How to Report Crypto Income?
Individuals who received, sold, or disposed of digital assets need to check “Yes” and should report all earnings related to cryptocurrencies. Additionally, there are different forms for different actions.
Taxpayers who held cryptocurrencies as capital and exchanged or sold the same during 2023 must fill out Form 8949. To represent the earnings and losses, an individual must report the relevant data on Form 1040. Additionally, individuals who use cryptocurrency for gifting purposes are required to fill the Form 709.
Moreover, anyone who is paid with digital assets must report the assets as wages and must report the same through Schedule C (Form 1040).
Additionally, individuals who no longer indulge in any of the digital assets-related actions can check “No” on the form. Additionally, the individual is only allowed to check the “No” option if they do not hold digital assets in their wallet or account in the year 2023. Furthermore, those who are purchasing cryptocurrencies using the US dollar or other fiat currencies using an electronic platform can also select the “No” option.
Furthermore, it is mandatory to fill out the form for individuals who made transactions of over $10K or more in the year 2023. Individuals are also encouraged to participate in shaping the future framework for crypto transactions. The IRS is continuously working to mitigate the complexities of the crypto market.
Adarsh Singh is a true connoisseur of Defi and Blockchain technologies, who left his job at a “Big 4” multinational finance firm to pursue crypto and NFT trading full-time. He has a strong background in finance, with MBA from a prestigious B-school. He delves deep into these innovative fields, unraveling their intricacies. Uncovering hidden gems, be it coins, tokens or NFTs, is his expertise. NFTs drive deep interest for him, and his creative analysis of NFTs opens up engaging narratives. He strives to bring decentralized digital assets accessible to the masses.
