In light of the leading cryptocurrency Bitcoin (BTC) touching new levels, some experts have drafted crypto tax rules that they believe would be useful to investors, especially those planning to delve into the crypto space in this current bull market.
IRS Demands Crypto Tax Reports
Bitcoin went as high as $73,000 this week, a move that was triggered by the massive demand for spot Bitcoin ETFs.
The price marked a new All-Time High (ATH) for the flagship digital asset. In the last 24 hours, the Bitcoin price has plummeted to $67,947.01 but the coin remains up by more than 50% year to date.
Looking at how far Bitcoin has surged thus far in three months, coupled with the growing investors’ interest in crypto, tax experts are warning that the Internal Revenue Service (IRS) might be preparing for some scrutiny. The speculations of these professionals are not far-fetched considering that the IRS released new tax reporting rules for the crypto industry in January.
The tax agency will likely be concerned with enhancing digital asset service, reporting, compliance, and enforcement programs. Hence the need for investors to be equipped with relevant information. During the tax year of 2019, the IRS retrieved crypto data by issuing a form with different versions of yes or no questions. In 2023, there are some digital asset questions added on the front page of Form 1040.
According to Matt Metras, the owner of MDM Financial Services, a good number of crypto investors do not realize that the “digital assets” section which cuts across cryptocurrency, stablecoins, Non-fungible tokens (NFTs), and others, applies to them.
To make the conversation trickier, the digital assets questions do not include spot Bitcoin ETFs or even Bitcoin futures ETFs.
Answering Questions on the Tax Form
The following entities are expected to answer “yes” to the questions posed by the IRS in Form 1040: those who sold crypto in 2023, traded one coin for another; or received digital currency as a payment, reward, or award. Those who acquired cryptocurrencies by using the United States dollars and are still holding the asset can answer “no” to the questions.
Those who answer “no” but have crypto profits or income, will be accused of demonstrating “willfulness” in intentionally violating the law, per an explanation offered by Andrew Gordon, tax attorney, certified public accountant, and president of Gordon Law Group.
Crypto held for more than one year qualifies for long-term capital gains of 0%, 15%, or 20% but still depends on the investor’s taxable income. However, short-term capital gains apply to assets that have only been owned for one year or less.
Crypto investors are likely to also receive Form 1099-MISC for rewards or income, and Form 1099-B for transactions. Notably, investors may not receive any form depending on the exchange.
