How do I report cryptocurrency transactions on my tax return?

Reporting Cryptocurrency Transactions on Tax Returns

Digital Asset Transactions and Taxation

- For U.S. tax purposes, digital assets, including cryptocurrencies and non-fungible tokens (NFTs), are considered property, not currency.

- Transactions with digital assets are taxable events, and income from these transactions must be reported on tax returns.

- A digital asset transaction includes but is not limited to the receipt, sale, exchange, or disposal of a digital asset or a financial interest in a digital asset.

Answering the Digital Asset Question

- On Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, and 1120-S, taxpayers must answer a digital asset question by checking "Yes" or "No".

- The question pertains to whether the taxpayer received, sold, exchanged, or otherwise disposed of a digital asset during the tax year.

Reporting and Recordkeeping

- Taxpayers must keep detailed records of digital asset transactions, including purchases, sales, exchanges, and other dispositions.

- Records should document dates, amounts, and other relevant information for each transaction.

Reporting Sales and Dispositions

- Use Form 8949, "Sales and Other Dispositions of Capital Assets", to calculate and report capital gains and losses from digital asset transactions.

- Report the results from Form 8949 on Schedule D (Form 1040), "Capital Gains and Losses".

Reporting Income from Digital Assets

- If digital assets were received as payment for services, they must be reported as income.

- For employees, digital asset payments are reported as wages.

- For independent contractors, payments are reported on Schedule C (Form 1040), "Profit or Loss from Business (Sole Proprietorship)".

- If digital assets were received as a reward or award, they must also be reported as income.

Additional Forms and Considerations

- Form 1099-B may be issued by exchanges or platforms that facilitate digital asset transactions, detailing proceeds from sales.

- Taxpayers should review the instructions for Form 1099-B to understand how to report information from this form on their tax return.

- In certain cases, such as a gift of digital assets, Form 709, "United States Gift (and Generation-Skipping Transfer) Tax Return", may be required.

Net Investment Income Tax (NIIT)

- The Net Investment Income Tax (NIIT) may apply to certain net investment income, including income from digital assets, for individuals, estates, and trusts above statutory threshold amounts.

Conclusion

Taxpayers must carefully report all digital asset transactions on their tax returns, adhering to IRS guidelines and utilizing the appropriate forms. Accurate recordkeeping and understanding of the tax implications of digital asset activities are crucial for compliance.

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Sources:

Digital assets | Internal Revenue Service 2024-08-02

Instructions for Form 8949 (2023) | Internal Revenue Service 2024-08-03

Form 8300 and reporting cash payments of over $10,000 2024-08-03

When Can You Deduct Digital Asset Investment Losses - TAS 2024-07-28

Who Sells Cryptocurrency? | Internal Revenue Service 2024-07-29

Instructions for Form 1099-B (2024) | Internal Revenue Service 2024-08-04

Taxpayers should continue to report all cryptocurrency, digital asset ... 2024-08-02

Digital Assets - Taxpayer Advocate Service 2024-07-30

Questions and Answers on the Net Investment Income Tax 2024-08-03