Form 1040 Cryptocurrency Question – How to Get It Right
If you invest in cryptocurrency, this is information you MUST know for this tax season.
The IRS is going to be closely watching those who deal in cryptocurrencies. Filing an incorrect tax return can result in an audit, so you need to ensure you are correctly reporting your transactions.
If you are filing a Form 1040, Form 1040-SR, or Form 1040-NR, you must check a box answering either “yes” or “no” to the question about virtual currency.
Who can check “NO”
If you owned cryptocurrency in 2021 but have not engaged in any transactions or your activities were limited to:
- Holding virtual currency in your wallet or account
- Transferred virtual currency between your wallet or account
- Purchased virtual currency using real currency, including purchases on platforms like Venmo or PayPal
- Engaged in a combination of holding, transferring, or purchasing virtual currency as described above
Who MUST check “YES”
This list includes the most common transactions that would answer “yes.”
- The receipt of virtual currency as payment for goods or services
- The receipt or transfer of virtual currency for free (without providing consideration) that does not constitute a bonafide gift
- The receipt of virtual currency as a result of a hard fork
- The receipt of new virtual currency as a result of mining and staking activities
- The 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
If you disposed of virtual currency held as a capital asset through a sale, exchange, or transfer, you must check “yes.” You will need to use Form 8949 to determine your capital gain or loss.
If you received virtual currency as compensation for services or disposed of any virtual currency that you held for sale to customers in business or trade, you will report the income as you would report other income of the same type.
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