Say “Yes” if You Bought Crypto in 2020, Says IRS
- The IRS has published newly-revised draft instructions for Form 1040 of the U.S. Individual Income Tax Return.
- The tax agency requires that all investors answer “yes” if they purchased cryptocurrency over the year.
- The October version of the draft instructions were not entirely clear.
The U.S. Internal Revenue Service (IRS) has updated the criteria for reporting cryptocurrency purchases in this year’s tax report. This brings more clarity for U.S. taxpayers.
Clarity on the Crypto Question
Beginning in 2020’s tax season, Form 1040 of the U.S. Individual Income Tax Return will feature a question on cryptocurrency investments, to which investors must answer “yes” or “no.”
The question reads: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” In the latest version of the draft forms, there is new criteria for checking “yes” on that question.
As per the newly-updated instructions, U.S. taxpayers in 2020 must report “yes” to the question on the first page of Form 1040 if they engaged in any of the following activities last year:
Purchase of cryptocurrencies (updated)
Sale of cryptocurrencies
Exchange of cryptocurrencies for other cryptocurrencies, assets, goods, services, etc.
Receipt of cryptocurrencies via airdrops or hard forks.
If a taxpayer does not meet any criteria, they can answer “no.”
Previous confusion stemmed from the fact that the instructions excluded “purchase of cryptocurrency” under the reporting criteria, which demands a “yes” answer under the new rules.
Other Important Considerations
In addition to providing more clarity on whether one should answer “yes” to the crypto reporting question, the IRS reiterated a few other points that taxpayers should consider.
Merely holding cryptocurrency in a wallet account or transferring it between wallets or accounts one owns or controls does not require taxpayers to answer “yes.” This means that long time holders of Bitcoin, Ethereum, and other altcoins can answer “no” if they did not sell or exchange cryptocurrency last year.
Additionally, the question on the front page of Form 1040 is only for reporting purposes. The final taxes on cryptocurrency gains or losses are calculated separately on Schedule D on Form 1040.
“If you disposed of any virtual currency that was held as a capital asset through sale, exchange, or transfer, use Form 8949 to figure your capital gain or loss and report it on Schedule D on Form 1040,” the IRS explained in the draft instructions.
The newly-updated tax forms should make tax reporting more straightforward for crypto investors this year.
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