IRS Want to Know If You Trade Cryptocurrencies
Cryptocurrencies are now more popular than ever. But if you own or trade crypto, IRS wants to know about it.
This year the 1040 US Individual Income Tax Return form has a question about crypto: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” The IRS is mostly interested in knowing if you have made a profit by selling or trading it. When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses.
If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to that Form 1040 question above.
The 2021 Form 1040 instructions clarify that virtual currency transactions for which you should check the “Yes” box include but are not limited to:
- the receipt of virtual currency as payment for goods or services that you provided
- the receipt or transfer of virtual currency for free that does not qualify as a bona fide gift under the federal tax rules
- the receipt of new virtual currency as a result of mining and staking activities
- the receipt of virtual currency as a result of a hard fork
- an exchange of virtual currency for property, goods, or services
- an exchange/trade of virtual currency for another virtual currency
- a sale of virtual currency
- any other disposition of a financial interest in virtual currency.
Depending on where you live, there may be state income tax implications as well. You can find more information here, and access the latest 1040 form here.
There are some other changes this year such as the reporting requirement for $600 or more in business transactions through third-party payment processors.