The IRS is drafting new crypto reporting rules for the 2022 tax year
Important takeaways
- The IRS has released a draft version of Form 1040, which includes new reporting guidelines for digital assets.
- This year, the IRS has explicitly instructed taxpayers to report NFTs alongside crypto and stablecoins.
- Taxpayers must report most, but not all, transactions and transfers involving digital currencies.
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The Internal Revenue Service (IRS) has released draft new instructions to US taxpayers on reporting digital asset activity.
The IRS releases draft tax documents
IRS Expands Crypto Tax Reporting Requirements
A new draft of Form 1040 states that digital assets will be “treated as a digital asset for federal income tax purposes.”
This year’s document explicitly includes non-fungible tokens (NFTs), cryptocurrencies and stablecoins in the digital assets category. It also includes “any digital representation of value recorded on a cryptographically secured distributed ledger or similar technology.”
Taxpayers must indicate on their tax forms whether they received digital currencies as payment, as a reward, from mining or staking, or from a hard fork. Furthermore, taxpayers must indicate whether they have sold, disposed of or traded digital assets and even whether they have transferred digital assets for free as a gift.
Taxpayers can answer negatively if they only held a digital asset, transferred a digital asset between their own wallets, or purchased digital assets with real currency such as US dollars. It notes that crypto purchases made through Paypal and Venmo do not need to be reported.
The IRS instructs users to “not leave [each] question unanswered” and to check yes or no for each question.
If digital assets are required to be reported, taxpayers can report these assets as gains and losses or as ordinary income.
The term “digital asset” is new for the 2022 tax year. In previous years, the IRS called the category “virtual currency” and did not explicitly discuss non-fungible tokens, mining profits or most of the other details seen in this year’s form.
The full text of the tax authorities’ draft tax form can be seen here. The agency cautions readers not to use this early version of the form when actually filing the tax.
The Internal Revenue Service also offers an updated web FAQ regarding virtual currencies on its website.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH and other cryptocurrencies.
