What You Need to Know About Cryptocurrency Filing With IRS
Americans who have made income from digital assets including cryptocurrency are expected to declare it in 2021 tax filing.
Form 1040, which U.S. taxpayers use to file an annual income tax return, the Internal Revenue Service (IRS) has a question about “virtual currency”.
Such transactions include getting compensation in crypto, rewards for crypto mining, or free coins via “Airdrops” or “hard forks” (when a cryptocurrency splits into multiple branches and creates a new coin), according to Shehan Chandrasekera, an accountant and head of tax at CoinTracker told CNBC.
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Asking about crypto transactions isn’t new. The IRS first asked taxpayers about their cryptocurrency dealings in 2019. But the question was asked on a Schedule 1 form, which not all taxpayers use. Schedule 1 form reports certain types of income, such as unemployment benefits or rental income that Form 1040 does not ask.
Early this year, the Department of the Treasury in a report said the crypto economy contributes to the so-called tax gap via lax reporting requirements that help facilitate tax evasion.
The White House and Democratic legislators aim to crack down on tax cheats. A new $1.2 trillion bipartisan infrastructure law requires annual tax reporting by digital currency brokers starting in 2023.
″[The IRS] is trying to capture the tax revenue in that growing market,” Chandrasekera said. “Every year, there’s a new wave of people coming into crypto who think it’s not taxed.”