Report virtual currency transactions on taxes? Don’t forget to tick a box

The IRS reminds taxpayers that there is a question about virtual currency at the top of Form 1040, Form 1040-SR, and Form 1040-NR. He asks, “At any time in 2021, did you receive, sell, trade, or otherwise dispose of a financial interest in any virtual currency?”

All taxpayers filing Form 1040, Form 1040-SR, or Form 1040-NR must check a box that answers either “Yes” or “No” to the virtual currency question. The question needs to be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency in 2021.

When taxpayers can tick “No”

Taxpayers who simply owned virtual currency at any time in 2021 can check the “No” box when they did not conduct any transactions involving virtual currency during the year, or their activities were limited to :

  • Hold virtual currency in their own wallet or account.
  • Transfer virtual currency between their own wallets or accounts.
  • Buy virtual currency using real currency, including purchases using real-currency electronic platforms such as PayPal and Venmo.
  • Engage in a combination of holding, transferring, or purchasing virtual currency as described above.

When taxpayers must tick “Yes”

The list below includes the most common transactions in virtual currency that require checking the “Yes” box:

  • The receipt of virtual currency as payment for goods or services provided;
  • Receiving or transferring virtual currency for free (without any consideration) that is not considered a bona fide gift;
  • Receipt of new virtual currency as a result of mining and staking activities;
  • The receipt of virtual currency following a hard fork;
  • An exchange of virtual currency for goods, commodities or services;
  • An exchange/exchange of virtual currency for another virtual currency;
  • A sale of virtual currency; and
  • Any other disposition of a financial interest in virtual currency.

If a taxpayer disposed of virtual currency held as capital property through sale, exchange, or transfer, they should check “Yes” and use Form 8949 to calculate their gain or his capital loss and report it on Schedule D (Form 1040).

If a taxpayer received virtual currency as compensation for services or disposed of any virtual currency they held to sell to customers in a trade or business, they should report the income as they would report other income. of the same type (for example, W -2 wages on Form 1040, 1040-SR, or 1040-NR, line 1, or inventory or services from Schedule C of Schedule 1).

For more information, see page 17 of the 2021 Form 1040 Instructions PDF and visit Virtual Currencies for general information on virtual currency and other related resources.

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