The IRS is increasing its scrutiny of digital assets, which means tax professionals need to be prepared for more reporting, compliance, and enforcement programs. But how should you calculate and report crypto taxes? Here are some key points to keep in mind:
– The capital gain or income tax may apply when you sell or trade digital currency, depending on how long you’ve owned the asset.
– The IRS now includes a question about digital assets on the front page of Form 1040 for tax year 2023.
– If you have sold, exchanged, or received digital currencies, the answer to this question should be “yes.” If you still hold an asset purchased with US dollars, the answer is “no.”
– Yes-or-no questions are powerful, and intentionally violating the law can lead to penalties.
– The 2023 digital asset question does not apply to Bitcoin futures ETFs or spot Bitcoin ETFs.
– To determine the tax rate for selling crypto, consider your holding period. Long-term gains (held for over a year) may be subject to a 0%, 15%, or 20% tax rate, while short-term gains (held for less than a year) may be subject to regular income taxes.
– Keep track of your purchase date to potentially “cut your rate in half” for long-term gains.
– Crypto investors often struggle with accurate reporting due to unreliable data from exchanges and high volumes of transactions.
– For tax year 2023, you may receive Form 1099-MISC, Form 1099-B, or no form at all from exchanges, depending on your activity.
– The U.S. Department of Treasury is proposing new regulations, including a standardized Form 1099-DA for digital asset reporting after January 1, 2025.
– It can be challenging to report crypto activity using personal records, especially with a high volume of transactions. Consider seeking professional help to ensure accurate reporting.
