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IRS Newswire April 11, 2024
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Issue Number: FS-2024-12
Inside This Issue
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*Taxpayers need to report crypto, other digital asset transactions on their tax return*
"Anyone who sold crypto, received it as payment or had other digital asset transactions needs to accurately report it on their tax return "
The Internal Revenue Service reminds taxpayers they must answer the digital asset question and report all digital asset related income when they file their 2023 federal income tax return. Taxpayers should also keep these reporting guidelines in mind for 2024.
The question appears at the top of Forms 1040, Individual Income Tax Return [ [link removed] ]; 1040-SR, U.S. Tax Return for Seniors [ [link removed] ]; and 1040-NR, U.S. Nonresident Alien Income Tax Return [ [link removed] ], and was revised this year to update wording. The question was also added to these additional forms: Forms 1041, U.S. Income Tax Return for Estates and Trusts [ [link removed] ]; 1065, U.S. Return of Partnership Income [ [link removed] ]; 1120, U.S. Corporation Income Tax Return [ [link removed] ]; and 1120-S, U.S. Income Tax Return for an S Corporation [ [link removed] ].
With appropriate variations tailored for corporate, partnership or estate and trust taxpayers, the digital asset question is:
At any time during 2023, did you:
(a) receive (as a reward, award or payment for property or services); or
(b) sell, exchange 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 recorded on a cryptographically secured, distributed ledger or any similar technology. Common digital assets include:
* Convertible virtual currency and cryptocurrency.
* Stablecoins.
* Non-fungible tokens (NFTs).
Digital assets are treated as property for tax purposes, and general property tax principles apply to any of these transactions.
*Everyone must answer the question correctly*
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120S must check one box answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving a digital asset in 2023.
*When to check "Yes"*
Normally, a taxpayer must check the "Yes" box if they:
* Received digital assets as payment for property or services provided;
* 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.
*Report digital asset income*
In addition to checking the "Yes" box, taxpayers must report *all income* related to their digital asset transactions. For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2023 must use Form 8949, Sales and other Dispositions of Capital Assets [ [link removed] ], to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses [ [link removed] ]. A taxpayer who disposed of any digital asset by gift may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return [ [link removed] ].
If an employee was paid with digital assets, they must report the value of assets received as wages. Similarly, if they worked as an independent contractor and were paid with a digital asset, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) [ [link removed] ]. Schedule C is also used by anyone who sold, exchanged or transferred a digital asset to customers in connection with a trade or business.
Keep in mind that most income is subject to taxation [ [link removed] ]. Failing to accurately report income may result in accrued interest [ [link removed] ] and penalties [ [link removed] ]. This includes various sources of income such as interest earnings [ [link removed] ], unemployment benefits [ [link removed] ] and income derived from the service industry [ [link removed] ], gig economy [ [link removed] ] and digital assets [ [link removed] ]. For further details, consult Publication 525, Taxable and Nontaxable Income [ [link removed] ].
*When to check "No"*
Normally, a taxpayer who just owned digital assets during 2023 can check the "No" box as long as they did not engage in any transactions involving a digital asset during the year. They can also check the "No" box if their 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 they own or control to another wallet or account they own or control; or
* Purchasing digital assets using U.S. or other real currency, including through electronic platforms.
For a set of frequently asked questions (FAQs) and other details, visit the Digital Assets [ [link removed] ] page on IRS.gov.
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