IRS Updates Question for Cryptocurrency

The IRS recently reminded taxpayers that they must again answer a digital asset question and report all digital asset related income when they file their 2022 federal income tax return. Although there was a similar question in 2021, for this year, the term “digital assets” has replaced “virtual currencies,” the term that was used in previous years.

The question, which appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, was revised this year to update terminology. All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets.

The new 2022 question asks:

• “At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

What is a digital asset?

A digital asset is a digital representation of value which is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

• Convertible virtual currency and cryptocurrency
• Stablecoins
• Non-fungible tokens (NFTs)

Everyone must answer the question, when filing Form 1040, Form 1040-SR or Form 1040-NR. All taxpayers, not just those who engaged in a transaction involving digital assets in 2022, must check the box, answering either “Yes” or “No”.

If you have any questions regarding the updated Cryptocurrency question, please reach out to your LMC professional.