Taxpayers are reminded of the Internal Revenue Services’ (IRS’s) requirement to report cryptocurrency income as the 2022 filing season approaches.
As of the 2021 tax filing season, the IRS is requiring individuals who have earned income through cryptocurrency activities to report it on their returns to the government. This is a reminder to crypto investors that the IRS expects that they comply with the existing crypto income and capital gains tax reporting requirements in addition to the filing deadline.
Cryptocurrency investors, who have been paid in virtual currency for providing goods or services, must calculate their gain or loss when they spend, trade, or otherwise exchange virtual currency. They are also required to report all sales of virtual currency, including trading one type of virtual currency for another type, on their tax return for the year.
Under the IRS’ reporting regime, all transactions involving virtual currency must be reported regardless of their dollar value and must be reported on Form 8949. Furthermore, any gains from these activities are subject to self-employment tax if the taxpayer is an employee, or to a capital gains tax if the taxpayer is an independent contractor.
The IRS is taking the reporting of taxable crypto-income in 2022 seriously, so all parties involved should ensure they are aware of their obligations and prepare accordingly. Failure to comply can result in stiff penalties and interest charges.
In addition to the filing deadline, taxpayers should also prepare to report their income on the Schedule 1 form. This form is used by taxpayers who report income from certain sources including wages, dividends, business income, capital gains, and income from dispositions of property. This includes income from virtual currency transactions, so taxpayers are required to report these income gains or losses on the Schedule 1 form when filing for the 2022 tax year.
To help taxpayers comply with the filing requirements, the IRS has issued detailed guidance on how to properly report cryptocurrency income, as well as how to file Form 8949. Taxpayers can use tax preparation software such as TurboTax to report taxable income from cryptocurrency transactions.
With the 2022 filing deadline quickly approaching, taxpayers are urged to begin planning and preparing their taxes. Taxpayers should be aware of their crypto-income obligations, and should work with a tax professional to accurately report income from cryptocurrency activities. It is also important that taxpayers keep accurate records of all transactions, as this will make it easier to prepare a tax return and avoid any penalties.
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