The IRS advises selecting “Yes” if you mine, stake, or otherwise derive any monetary benefit from cryptocurrency.
The Internal Revenue Service (IRS), an agency responsible for enforcing United States federal tax laws, has issued a list of reporting requirements for the general public dealing with cryptocurrencies as the 2022 federal income tax return filing deadline approaches.
What You To Know About IRS Tax Return?
On income tax-related reporting forms, the IRS used the term virtual currencies until 2021; the term has since been changed to digital assets. Regardless of whether they have engaged in transactions involving digital assets, all US citizens must answer questions about cryptocurrencies.
The question regarding digital asset income appears on three forms: 1040, Individual Income Tax Return; 1040-SR, US Tax Return for Seniors; and 1040-NR, US Nonresident Alien Income Tax Return.
While all tax filers are required to respond “yes” or “no” to the preceding question, the IRS has provided nine situations in which taxpayers must select “yes.”
According to IRS instructions, you generally do not need to answer “yes” if you held onto a digital asset in 2022 but did not purchase more of it, sell any of it, or transfer it to another account.
However, if you sold any digital assets for a profit or a loss, you must answer “yes” and use Form 8949 to record your capital gain or loss. If you acquired any new digital assets during the year, you must also mark yes and complete the form. This may include digital assets that you may have received as compensation in 2022.
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Form 8949
Form 8949 is used to report transactions involving assets that could result in a capital gain or loss. This includes virtual assets, stocks, and bonds. Therefore, if you purchased Bitcoin at any point in 2022, you must indicate this on the form. Similarly, if you sold any Bitcoins throughout the year, you must indicate this on the form.
The form is divided into two sections: short-term and long-term transactions involving capital assets. Capital assets held for less than one year are taxed at a higher rate than long-term assets.
After you’ve entered all of your transactions, you will be able to calculate your total short- and long-term gains or losses for Schedule D of Form 1040.
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