All tax filers will have to answer for crypto purchases as the IRS clarified earlier today, and they will have to check the “yes” option on the crypto question if they purchased crypto in 2020 as we can see more in today’s crypto news.
The instructions clarified that the US Tax filers will have to check up on the new version of instructions as they don’t explicitly mention purchases. The United States Internal Revenue Service released revised draft instructions for the tax filers this year and clarified that the crypto purchases count as virtual currency transactions. According to the instructions, anyone that purchased crypto in 2020 has to answer “yes” to a question of the Form 1040 for individuals filing income taxes which asks:
“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
The IRS issued another version of draft instructions (dated 12/31/20).
A couple of new items in this version 👇
– Further clarifies what's virtual currency is (very broad definiton)
– Requires you to check "yes" if you just purchased crypto in 2020 https://t.co/cP6Iam1ZVh
— Shehan 🧗♀️|🇱🇷|🇱🇰 (@TheCryptoCPA) January 4, 2021
Users that merely held cryptocurrency or transferred it between wallets that they own, can answer “no” to this question. A draft instructions page from October tried to explain when to check “yes” which doesn’t mention purchases. It detailed transfers, sales, and trades but neglected to explain what it means to “acquire any financial interest.” The revised draft that was published on December 31, 2020, fixed that.
The head of Tax Strategy for software company CoinTracker pointed out the revisions and said that the clarification is extremely important:
“‘Financial interest’ is a cover-all type of category. We still do not know how narrowly or broadly one should think about it. In my opinion, the inclusion of crypto purchases made things more clearer for people who were on the fence.”
Despite the need to click “yes” on that question according to Chandrasekera, there nothing to report on any forms because buying crypto in USD is not taxable. This means that anyone that buys BTC or any other crypto does not pay taxes because of the purchase so why is the IRS eager to know when someone purchased crypto?
As far as the form goes, it is not concerned with how much tax filers are purchasing whether that is $1 or $100,000 they will have to check the box. By contrast, those that made money off the crypto trading will have to determine their capital gain or loss and to report figures as capital gains are taxed and capital losses can reduce what is owed. Those who received crypto as compensation will have to report it as income.
This is still a bit new for the agency as IRS clarified as the last tax season, the question was not on the 1040 form at all but on the Schedule 1 which is a supplement for additional income like from rental properties and alimony.
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