New IRS Form Clarified How To File Crypto Taxes After Transactions

The new IRS forms clarify how to file crypto taxes after conducting crypto transactions so now crypto holders who didn’t trade actively during the past year can check the “no” box on the crucial tax question as we are reading more in today’s crypto news.

The new IRS form 1040 specified that the IRS cares less about crypto holdings than about transactions and the airdrops from hard forks for example are taxable while the transfers between personal wallets don’t have to be disclosed. The IRS crypto question is not totally unambiguous as the transactions through pass-through entities could still check the “yes” box.

BREAKING:

According to draft instructions released by the IRS on Oct 23rd, If you just held crypto on a wallet/account and/or transferred crypto between wallets/accounts you own during 2020, you do NOT have to disclose this to the IRS by checking "yes" 👇 #cryptotaxes pic.twitter.com/WIij2wwUVf

— Shehan Chandrasekera, CPA 🧗‍♀️|🇱🇷|🇱🇰 (@TheCryptoCPA) October 25, 2020

The latest draft of the mandatory form for personal income tax, the United States Internal Revenue Service clarified crucial language about which cryptocurrency holdings and transactions have to be disclosed and which do not. According to the new 1040 form draft, which the IRS released, if you hold crypto but don’t trade it, you can check the “no” box next to the form’s primary crypto question:

“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

If all you did this year was sit on your crypto or just transfer it between the wallets you own, you are clear. The updated guidelines provide specific examples of cases that fall under the general receiving, selling, and sending of crypto. The transfer between wallets means transferring funds in and out of exchanges for admin purposes as head of Tax Strategy at crypto accountancy company CoinTracker Shehan Chandrasekara said.

 “The US has a voluntary tax system. You are expected to report income correctly by default. If you are audited, then you’ll have to substantiate. In this case, you’ll have to prove that you actually lost the keys.”

Last tax year, the question about virtual currencies appeared on Schedule 1 of Form 1040 which the taxpayers have to request separately. The IRS put the issue of virtual currency front and center on the tax form by relocating to the first page of the form which means that everyone will have to confront the question:

 “I don’t think this indicates any new approach. The IRS is merely providing more clarity on how to answer this question. It shows that the IRS really cares about transactions that affect your tax bill. At least for now, the IRS doesn’t seem to care about your holdings. You aren’t required to disclose them anywhere unless you have a taxable transaction.”