US regulators continue to fine-tune their tax filing requirements for cryptocurrency users. A second version of Form 1040 from the Internal Revenue Service for the 2020 tax season published online suggests that the agency will now require anyone involved in a transaction involving cryptocurrency in 2020 to declare:
“If you made a transaction with virtual currency in 2020, please check the ‘Yes’ box next to the virtual currency question on page 1 of Form 1040 or 1040-SR.”
The draft guidance clarifies that transactions include “receiving or transferring virtual currencies free of charge” (eg via airdrops and hard forks), the exchange of virtual currencies for goods or services, the purchase or sale of virtual currencies, an exchange of virtual currencies . currency for other properties, including for another virtual currency, and the acquisition or disposal of “a financial interest in virtual currency”.
Simply holding virtual currency in a wallet or account, or transferring it between two wallets or accounts managed by the same owner, does not count as a transaction to the IRS.
Those who have disposed of virtual currencies held as a capital good through sale, exchange, or transfer must calculate their capital gains and losses and report them on Schedule D of Form 1040, the IRS outlines.
Against this backdrop of growing attention to crypto tax reporting in the US, it may come as no surprise that major industry players are investing in tax solution providers that could ease the reporting burden on both consumers and businesses.
TaxBit, which provides cryptocurrency tax automation software for retail users, exchanges, and merchants, today released announced new investments from PayPal Ventures, Coinbase Ventures, as well as new investments from existing financier Winklevoss Capital.
In particular, answering ‘yes’ to the IRS’s questions does not mean that individuals who do will necessarily have to pay taxes on their cryptocurrency by 2020. Cointelegraph has published recent commentary and advice from crypto tax specialists for US readers explaining some of the key requirements and developments.
However, the new updated design form provides in particular more clarity about exactly what kind of activities count must be explained. An earlier version of the form had raised concern in the industry for its inadequate and vague wording, with some commentators going so far as to accuse the IRS of setting up a “perjury trap” and creating confusion.