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Virtual Assets: What Exactly Must Be Reported to the IRS? -Forbes | Omd Cialis

Investors in digital assets like cryptocurrency and non-fungible tokens (NFTs) have been on a wild ride over the past few years. After all, the price of a single bitcoin
hit an all-time high above $65,000 in November 2021 before dipping to around $20,000 in June 2022 and has remained in that range ever since. Meanwhile, the value of many popular NFTs has dropped like a stone or been wiped out completely.

With this in mind, many crypto investors don’t have to worry about paying taxes on profits this year. With price craters and many investors waiting for better days, many will have no realized gains to claim.

However, investors selling or using crypto and NFTs will continue to face numerous scenarios in 2022 that require reporting to the Internal Revenue Service ( You may even have noticed an update to the IRS’s 2021 Form 1040 last year that asked this very specific question at the top of the page:

“Have you received, sold, exchanged or otherwise disposed of financial interests in any virtual currency at any time during 2021?”

You can also expect an updated version of this question on the new Form 1040 for 2022. We know this because the IRS released a draft of the form, which you can find here.

The new question is as follows:

“Did you at any time during 2022: (a) receive (as a reward, award, or payment for property or services), or (b) sell, trade, gift, or otherwise dispose of a digital asset (or a financial asset)? interested in a digital asset)?”

This stronger question is designed to ensure filers consider digital assets other than crypto, such as: B. NFTs. It is also said to contain more crypto earned as rewards through various projects, including play-to-earn gaming.

Tax considerations for digital assets in 2022

But what exactly do you need to report to the IRS? This really depends on your level of engagement with digital assets and how you ultimately sell or dispose of any assets you come across this year.

According to attorney Asher Rubinstein of Gallet Dreyer & Berkey, individuals who have received, sold, bartered, given away, or otherwise disposed of crypto, NFTs, and other digital assets this year must check the box that says “Yes” next to this question on the IRS -Form 1040. Further reporting is required depending on the level of involvement, he says.

Rubinstein provides the following examples of situations where you may report your crypto holdings to the IRS and, as a result, owe taxes on profits.

Example 1: You received a cryptocurrency payment. “If you were paid in crypto, that counts as income for you, just like if you were paid in US dollars or your compensation includes stocks,” says Rubenstein. “You must report the crypto compensation on your income tax form, IRS Form 1040.”

Example #2: You sold crypto to someone else. Rubenstein says this is considered an disposal of property, just like selling stock or real estate. As a result, you must report the capital gain or loss from the crypto sale to the IRS. “To properly report gains or losses from crypto, taxpayers should file IRS Forms 8949 and 1040 Schedule D, which apply to short and long-term investments,” he says.

Example #3: You exchanged crypto or bought something with it, like a car or a boat. Rubenstein says imagine you bought Bitcoin for $5,000 a few years ago and now that single coin is worth $20,000. If you exchanged that bitcoin for a $20,000 car, you might feel like you’re making an even trade for two items of similar value.

However, US tax law does not see it that way. In fact, they see that you made $15,000 in taxable income from the bitcoin profit. “It’s like buying $5,000 worth of stock and selling it for $20,000,” says Rubenstein.

Example #4: You earned interest on a crypto savings account. You still own the crypto in this scenario, but you have lent it to a crypto exchange for a fee. With crypto savings accounts, “the fee you earn is taxable income,” says Rubenstein.

Example #5: You used crypto for staking. This is the case when crypto is placed on a blockchain like Ethereum to maintain that network. “The reward for more crypto counts as taxable income,” says the attorney.

Example #6: You used crypto to buy an NFT. Rubenstein says NFTs are typically bought with crypto, and this opens the door to at least three possible tax events. First, you can be taxed on the appreciation in value from the moment you bought the crypto and used it to buy an NFT. Second, you may owe taxes on the sale of an NFT if you sell for more than you bought it. Third, an NFT that generates residual income may require additional reporting and taxable income.

What Don’t You Have to Report to the IRS?

According to Rubenstein, it is still possible to own digital assets without having to report detailed information to the IRS.

“You don’t have to report income that you haven’t realized or actually received,” he says.

In other words, owning a digital asset while it is appreciating is not a taxable event as you have not yet received income from the appreciation. If you sell the digital asset for a profit, you have now “realized” the income and that is a taxable event.

If you lose money investing in digital assets this year, that’s another scenario where you don’t owe income taxes. However, through a process called tax-loss harvesting, you can potentially recoup up to $3,000 in gains from other investments in the same tax year.

If you are curious how this might work, you can read an IRS page with frequently asked questions (FAQ) about digital currency transactions.

If you’re still confused about whether you owe taxes on virtual assets, how much you need to pay, or whether you can write off losses against your taxable income (and if so, how much), work with an accountant who specializes in crypto knows you can submit your taxes.

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