The American Internal Revenue Service (IRS) is expanding its crypto tax requirements. The new draft of Form 1040 suggests that digital assets will be treated for federal income tax purposes.
This year’s document explicitly includes non-fungible tokens (NFTs), cryptocurrencies, and stablecoins in the category of digital assets. It also includes all digital representations of value recorded on a cryptographically secured distributed ledger or similar technology.
American taxpayers will need to indicate on their tax forms whether they received digital currencies as payment, rewards, mining, or staking. Furthermore, taxpayers will need to specify whether they sold, disposed of, or traded digital assets, and even whether they gifted digital assets as a donation.
Taxpayers can answer negatively if they only held digital assets, transferred them between their own wallets, or purchased digital assets in fiat currency such as the US dollar. It is noted that crypto purchases made through PayPal and Venmo do not need to be reported.
The IRS advises users not to leave any question unanswered and to mark each question with yes or no.
Taxpayers can report digital assets for capital gains and losses tax or as regular income.
The term ‘digital assets’ is new for the 2022 tax year. In previous years, the IRS referred to the category as ‘virtual currency’ and did not explicitly discuss NFTs, gains from mining, or most other details in this year’s form.
The full text of the IRS tax form draft can be found on the IRS website. The agency warns readers not to use this early version of the form when actually filing taxes.
The IRS also provides updated web questions related to virtual currencies on its website.
