The Latest on Digital Asset Reporting
Digital assets are a form of value, like cash, but they exist only in digital form and are protected by strong cryptography. These assets often operate on a blockchain, distributed ledger or any similar technology. Common digital assets include virtual currency and cryptocurrency, stablecoins, and nonfungible tokens.
Among digital asset transactions are:
- Selling digital assets
- Receiving them as payment for goods or services
- Acquiring new ones through mining and staking
- Obtaining additional ones from a so-called hard fork, where a cryptocurrency splits into two
- Exchanging them for property, goods, services or other digital assets
- Any other disposition of a financial interest in digital assets
Reporting rules
If you are involved in any of these transactions, you must report all income related to the transaction. The way you calculate your gain or loss and the tax form you’ll use depends on the nature of the transaction:
- To figure out a gain or loss from selling digital assets, use IRS Form 8949, Sales and other Dispositions of Capital Assets, and report it on IRS Form 1040, Schedule D, Capital Gains and Losses.
- If you received a digital asset as a gift, you’ll need to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
- If individuals received any digital assets as compensation for services or disposed of any digital assets they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type. For example, they would report W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services on Schedule C.
- 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 digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Schedule C is also used by anyone who sold, exchanged or transferred digital assets to customers in connection with a trade or business.
Always check with your tax and/or financial advisers to be sure that you are complying with the latest IRS guidelines.
©2024