Tax Tip 2023-45: Understand digital asset reporting and tax requirements

IRS Tax Tips

April 5, 2023

Issue Number:? Tax Tip 2023-45

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Understand digital asset reporting and tax requirements

All taxpayers filing 2022 tax year Forms 1040 and 1040-SR must check a box indicating whether they received digital assets as a reward, award or payment for property or services or disposed of any digital asset that was held as a capital asset through a sale, exchange or transfer.

Examples of digital assets transactions include:

A sale of digital assets.
The receipt of digital assets as payment for goods or services provided.
The receipt or transfer of digital assets for free, without providing any consideration, that does not qualify as a bona fide gift.
The receipt of new digital assets as a result of mining and staking activities.
The receipt of new digital assets as a result of a hard fork.
An exchange of digital assets for property, goods or services.
An exchange or trade of digital assets for another digital asset(s).
Any other disposition of a financial interest in digital assets.

Reporting digital assets transactions

If the ?yes? box is checked, taxpayers must report all income related to their digital asset transactions.
- Taxpayers should use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss and report it on Schedule D (Form 1040), Capital Gains and Losses.
- If the transaction was a gift, they must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
- If individuals received any digital assets as compensation for services or disposed of any digital assets they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type. For example, they would report W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services on Schedule C.

The Instructions for Form 1040 and 1040-SR and the IRS Digital Assets page have more information.

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Issue Number:? Tax Tip 2023-45