IRS Revamps Crypto Reporting Rules: What You Need to Know

• The Internal Revenue Service (IRS) is revamping its crypto reporting requirements, referring to digital money as property instead of a virtual currency.
• On the 1040 form, taxpayers will be asked if they received, sold, exchanged or disposed of any digital assets in 2022.
• Tracking transfers and cost basis of tokens can be challenging but there are tools and processes to properly report crypto activity.

IRS Revamps Crypto Reporting Requirements

The Internal Revenue Service (IRS) is revamping its crypto reporting requirements for the 2022 filing season, referring to digital money as property instead of a virtual currency. On the 1040 income tax form, taxpayers will be asked if they received, sold, exchanged or disposed of any digital assets during the year.

Challenges with Crypto Taxation

Abhinav Soomaney – a managing partner at Crypto Tax International – explains that tracking transfers and cost basis of tokens can be challenging but there are tools and processes to properly report crypto activity. For example, his team has integrated an IT team that plugs in codes to pull appropriate information directly from the blockchain. Additionally, manual transfer analysis can help arrange all transfers made by the client chronologically to secure the correct cost basis and date acquired for tokens transferred and sold or held on another platform.

Consequences for Ignoring Rules

Soomaney warns people not to ignore these rules and emphasizes that there are serious consequences for doing so: “It is important to note that failing to report your cryptocurrency activities could result in significant penalties such as fines or even jail time depending on your country’s regulations.“

Advantages of Properly Reporting Crypto Activity

Although it may seem daunting at first glance, properly reporting your cryptocurrency activities can provide several advantages such as reducing your overall tax liability due to losses incurred when trading cryptocurrencies. Additionally, it allows you to take advantage of potential capital gains deductions when you sell digital assets held over 12 months or more.

Conclusion

To sum up, while reporting cryptocurrency activities may seem intimidating at first glance due to its complexity, proper reporting provides numerous advantages including potential deductions and reduced overall tax liability due to realized losses from trading cryptocurrencies. Furthermore, ignoring these regulations carries serious consequences such as stiff fines or even jail time depending on one’s country’s regulations.