Cryptocurrency transactions must be reported to the IRS
As tax season approaches, investors who have dabbled in buying or trading cryptocurrencies may have to fill out more IRS forms than usual this year.
Many, but not all, transactions made in bitcoin, ethereum, and other digital currencies must be reported to the federal government. That is leaving some crypto newbies confused about how to prepare their taxes.
Here's what you need to know about how cryptocurrency activity is taxed and how to report it, according to Shehan Chandrasekera, CPA and head of tax strategy at CoinTracker, a cryptocurrency portfolio tracker and tax calculator.
First of all, if you used regular US dollars to purchase crypto assets that have been held on a crypto exchange or wallet, rest easy as you do not have a tax liability and no reporting is required, Chandrasekera told CBS News Streaming.
But the Internal Revenue Service requires US residents to report the following crypto events, which are considered taxable:
You have cryptocurrency assets and used cryptocurrency to buy a good or serviceSold or exchanged your crypto assets for government-issued currencyExchanged one cryptocurrency for anotherYour employer paid you in cryptocurrencyYou were given free tokens via an airdrop
“If you had any of these five situations, you would have an obligation to file a declaration,” Chandrasekera said.
Trading cryptocurrencies? You must report these transactions to the IRS https://t.co/7TTVqtVQro
— CBS News (@CBSNews) February 18, 2022
46 million and rising
Millions more Americans in 2022 will need to report this type of activity to the IRS. In total, 46 million US residents now own bitcoin, and that number is increasing daily, according to Chandrasekera.
Of course, just because you have to report an event to the IRS doesn't mean you necessarily owe money in taxes. Only transactions that result in gains, versus losses, may be subject to tax.
More Americans are entering the world of cryptocurrencies every day as new exchanges arrive on the market. Crypto trading platforms made big plays for new users in this year's Super Bowl, spending millions on 30-second ads that companies like FTX Trading and Crypto.com hope to attract new customers.
FTX.com even gave away bitcoins to some viewers, gifts that prize winners will be required to report on their tax forms this year.
Author: Patricia Chung 4:54 pm