United States federal tax laws enforcement agency, the Internal Revenue Service (IRS) has listed a couple of criteria required for crypto income reporting in preparation for 2022 filing. The deadline for filing the 2022 federal income tax return is approaching, hence the need for appropriate reporting.
Taking a close look at the income-tax-related forms, all U.S. citizens are required to answer questions about cryptocurrencies whether they are active investors or not.
The form has been amended to regard crypto as ‘digital assets’ as against ‘virtual currencies’ which it was called a few years ago. Similarly, all taxpayers are expected to document all digital asset-related incomes while filling out the forms to avoid a John Doe summon.
Crypto Investors Required to Report Holdings
Markedly, these digital assets are not limited to cryptocurrencies but also include Non-fungible tokens (NFTs) and stablecoins like Tether USDT, according to the IRS. Out of all the forms to be filled for income tax returns, three of them featured questions on digital assets. These three forms are 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, the U.S. Nonresident Alien Income Tax Return.
The forms entail that the payee answers either Yes or No to these outlined questions; “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)?”
A few instructions to easily understand the questions were expanded for taxpayers. Specifically, nine illustrations involving receiving, earning, transferring or selling cryptocurrencies for any monetary benefit, including mining and staking were made to emphasize when the taxpayer is expected to tick Yes. New acquired digital asset owners will also tick Yes.
Noteworthy, a loss or gain does not influence the answers to these questions. However, such capital gains or losses could be recorded on form 8949 which could also be used for stocks and bonds.
A ‘No’ is expected from taxpayers who have held their digital assets in their wallets, transferred the digital assets to their wallet owned by them, or even bought digital assets with their fiat holding.