When you file your 2022 taxes, you’ll likely find a new cryptocurrency question on the first page of your tax return. But it might look a little different than in previous years.
The IRS first added a crypto question to the top of Form 1040, the main federal income tax document that nearly all taxpayers file, for tax year 2020. Previously, the question appeared on Schedule 1, which used to report additional forms of income. Now the IRS wants to change the question yet again, according to a new draft of the 2022 version of the 1040 recently released by the agency.
“At any time during 2022, you: (a) received (as a reward, prize or compensation); or (b) sell, exchange, give away or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” the IRS asks on the draft form.
The yes or no question previously read: “At any time during 2021, did you receive, sell, trade, or otherwise dispose of any financial interest in any virtual currency?”
Some tax experts expressed frustration with the wording of the question on 2021 tax forms, particularly with what it meant to “receive” cryptocurrency. Simply buying and holding crypto with regular US dollars is not a taxable event, but they were concerned that the question might lead people to believe that it is.
On March 18, less than a month before Tax Day, the IRS issued guidance to help taxpayers accurately answer the cryptocurrency question. At that time, more than 72 million Americans had already filed their taxes, IRS records show.
The new wording appears to be aimed at clearing up some of the confusion from last year’s return, although the IRS did not respond to Money’s request for comment to explain the change. It’s also unclear how many taxpayers accurately answered the question when they filed their 2021 taxes.
The push to regulate cryptocurrencies
The positioning of the cryptocurrency question at the top of the main tax form, just below basic identifying information like your name, address, and Social Security number, reflects the importance the IRS is placing on cryptocurrency .
“The IRS has indicated that they believe there is a large amount of underreporting when it comes to cryptocurrencies, and they are increasing enforcement efforts to combat it,” said Andrew King, vice president of tax policy and research at Goldman Sachs Ayco Staff. Finance. Management recently told Money.
Cryptocurrency is treated as property (not currency) by the federal government and is subject to taxation in various circumstances, including:
- Sell at a profit, like with stocks
- Earn income from crypto “mining” or “staking”
- Exchange cryptocurrencies for goods, services or other cryptocurrency
- Receiving crypto through an “airdrop,” also known as a marketing-related giveaway or campaign
As mentioned above, the simple purchase of cryptocurrencies with fiat money is not a taxable event. Neither are cryptocurrencies transferred between various wallets owned by you.
While the IRS is taking steps to capture more of these taxable events, the White House recently announced plans to regulate crypto markets. Any regulation is sure to upset crypto purists, who argue that regulation would go against the crypto ethos of decentralization and could stifle innovation. However, some investment experts say the regulation may bode well for cryptocurrencies in the long run, as it ensures better market stability, broader adoption and more protections for consumers.
Throughout the pandemic, crypto scams have proliferated. Since 2021 alone, the Federal Trade Commission says consumers have lost more than $1 billion to scammers.
More than Money:
Best Crypto Exchanges for 2022
Best Crypto Wallets for 2022
The best money moves for August