In early October, the IRS made its biggest release of crypto tax guidance in the past five years. And it heralds a massive change in how crypto traders report their cryptocurrency income.
The New Crypto Tax Guidance
The IRS has published an early release of the 2019 version of Schedule 1 of Form 1040. The schedule now starts with the following new question,
"At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"
A yes or no answer is required. (The IRS defines cryptocurrencies as virtual currencies.)
This question requires all taxpayers to admit if they dabbled with cryptos during 2019.
Once a taxpayer checks this box, they are added to the list of known crypto traders for whom the IRS intends extra scrutiny.
Checking Yes to Crypto Tax
Photo by Julian Lozano on Unsplash.
So let’s say you check yes in 2019. What are the implications?
First, if you sold or exchanged cryptos in 2019, you must list your capital gains from those transactions. When listing a coin sold, you have to state the purchase date. If that date happens to be in a prior year, it begs the question, “did you accurately report your cryptos in that year?”.
Smart traders would go back and amend those prior year returns before the IRS finds out.
Checking No to Crypto Tax
Photo by Gemma Evans on Unsplash.
What are the implications of a crypto trader checking no?
When you sign a tax return, you are signing a statement that says under penalty of perjury, this return is true, correct and complete. Wrongly checking no would be a felony subject to fines or imprisonment.
This new Schedule 1 will cause all U.S. crypto traders to come out of the closet or permanently hide.
Need Crypto Tax Guidance?
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Featured image by André François McKenzie on Unsplash.
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