The U.S. Internal Revenue Service (IRS) service has published a draft new mandate for taxpayers in the country to report their cryptocurrency activities. There are also some rules for non-fungible tokens (NFT). Here are the details…
IRS changes cryptocurrency reporting needs
A new draft of Form 1040 submitted by the IRS says that cryptocurrencies “will be treated as a ‘digital asset’ for federal income tax purposes.” The document clearly includes NFTs, cryptocurrencies and stablecoins in the “digital assets” category. It also includes “an arbitrary digital representation of the price recorded in a cryptographically secure distributed ledger or peer technology.”
Taxpayers need to indicate whether they have received cryptocurrencies through payment, rewards, mining, staking, or hard forks. In addition, taxpayers must indicate whether they are selling, disposing of, or bartering assets. They should even report whether they are offering digital assets for free.
In addition, taxpayers are required to answer the “Digital Assets” section on their income tax returns, regardless of whether they have processed digital assets during the tax year. This new guide differs from last year’s in the use of the word “digital presence”. Last year, the term “virtual currencies” was used, which the institution describes as “more limited”. In addition, Koindeks.comAs we reported, the guide only defined the rules governing cryptocurrencies and stablecoins.
Biggest change, NFTs
Taxpayers may respond negatively when they simply hold a digital asset, transfer a digital asset in the middle of their wallet, or purchase a digital asset in real currency in US dollars. For this reason, he states that crypto purchases made via Paypal and Venmo do not need to be reported. If digital assets are required to be reported, taxpayers report these assets as capital gains and losses or systematic income.
One of the most notable changes in 2022 tax reporting is the focus on NFTs, which are seeing a boom in popularity in 2021. The new rules require NFT investors to report all NFT income, an area fraught with accusations of illegal process and fraud. With this development, the USA has joined the list of countries that want to tax NFT trade. Some major countries are on this list, including Singapore, Israel, and India.