The US Internal Revenue Service (IRS) has updated its crypto disclosure instructions. The update provides clarity on who has to answer “yes” to the IRS crypto question and when it is appropriate to select “no” as the answer.
IRS publishes new instructions for filing crypto taxes
The IRS published updated instructions for Form 1040 on December 31. They provide additional information to help answer the cryptocurrency question on the main tax form that individuals use to file U.S. tax returns.
The first question in Form 1040 concerns the cryptocurrency. It states, “At any point in 2020 have you received, sold, sent, exchanged or otherwise acquired financial interests in a virtual currency?” Taxpayers only need to answer “yes” or “no” to this question.
According to Cryptotrader TaxAs a crypto tax software company, the IRS now requires taxpayers who bought cryptocurrency in 2020 to answer “yes” to the crypto question on Form 1040 – not just if they sold, traded, or exchanged cryptocurrency, such as described in the previous instructions. The company details:
This language was not present in the previous tutorial released in October. The IRS will now know anyone who has bought cryptocurrency in 2020, as all taxpayers will have to answer this question under penalty of perjury.
In summary, the taxpayer must answer “yes” to the IRS cryptocurrency question in 2020 if he has bought or received cryptocurrencies (even from a drop of air or a fork). You also have to answer “yes” if you have sold a cryptocurrency for a fiat currency or exchanged a cryptocurrency for another cryptocurrency. They also have to answer yes if they have used cryptocurrency to pay for goods or services.
The new instructions also make it clear when taxpayers do not have to answer the crypto question with “yes”. The IRS described:
A virtual currency transaction does not include holding virtual currency in a wallet or account, or transferring virtual currency from a wallet or account you own or control to another you own or control.
“This is a valuable clarification for long-term owners who weren’t sure whether to answer yes or no to the question,” commented Cryptotrader Tax.
The IRS also stated that if a taxpayer has cryptocurrencies held as capital assets through sale, exchange, or transfer, they must use Form 8949 to determine their capital gain or loss and report it on Appendix D of Form 1040 .
What do you think of the IRS tax filing requirements? Let us know in the comments below.
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