HomeLatestTax Day Isn’t Just for Traditional Assets
Tax Day Isn’t Just for Traditional Assets
March 29, 2022 at 10:56 am - by Editor Prism MarketView
Tax Day Isn’t Just for Traditional Assets
The IRS wants to know: At any time during 2021, did you receive, sell, exchange or otherwise dispose of any virtual currency?
This isn’t a casual or optional question. In fact, they moved it up higher on tax forms this year and simplified it to make it easier for crypto fans to respond.
Don’t think about skipping this question—even if you didn’t engage in a 2021 transaction—or answering “no” if you did, indeed, sell cryptocurrency, get paid for services rendered in crypto, exchanged one digital currency for another, or acquired it through mining or staking. You can, however, safely check the “no” box if you bought and held your virtual currency with U.S. dollars or transferred it between your digital wallets.
If you respond in the affirmative, then the IRS will expect a capital gain or loss on your Schedule D, so make sure you follow through accordingly.
2021 welcomed many new crypto investors—about 16 percent of U.S. adults have already invested in, traded or used cryptocurrency, according to the Pew Research Center—who will now be confronted with its tax implications for the first time. Like a traditional stock, capital gains apply to digital currencies as well. And if you get paid in crypto for work, that, too, represents taxable income.
The crypto-taxes connection
Why all the fuss? For starters, tax evasion is against the law. Likewise, cybercrime continues to grow across the globe and too many bad actors are taking advantage of the relative anonymity of crypto to exploit the system.
The IRS isn’t the only organization taking this seriously.
With the goal of increasing tax transparency between countries and bolstering worldwide compliance, the Organization for Economic Cooperation and Development recently proposed the Crypto-Assets Reporting Framework. Likewise, President Joseph Biden signed an Executive Order outlining the first-ever government policy for digital assets with the dual aim of addressing risks and harnessing potential benefits.
In addition, cryptocurrency exchanges will be required to send 1099-B forms to cover transactions starting next year, with new reporting requirements anticipated to raise nearly $28 billion over the next decade, according to the Joint Committee on Taxation.
Don’t guess when it comes to your taxes
If you’re new to crypto and uncertain about how to move forward with your taxes, check with a tax pro or accountant ahead of April 18. Even if you are experienced with digital investments, it never hurts to seek expert advice to ensure that you’re responding truthfully to the IRS.
Further, more and more service providers are offering software and support in managing digital assets with tools to determine tax liability.
Either way, make sure that you can check “yes” or “no” with certainty on your 1040 form before Tax Day arrives.
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