US taxpayers will find a broader, more defined category encompassing cryptocurrencies and tokens no fungibles (NFT) on your 2022 IRS tax forms. the bill published by the Internal Revenue Service features a well-defined Digital Assets section outlining whether and how taxpayers will account for the use of cryptocurrencies, stablecoins, and NFTs.
Page 16 of the draft defines Digital Assets as any digital representation of value recorded in a “cryptographically secured distributed ledger or any similar technology.” The 2021 tax form required taxpayers to indicate whether they received, sold or traded in “virtual currencies,” a term that will change on the 2022 1040 tax form, yet to be published.
Taxpayers must respond to the Digital Assets section of their tax return whether or not they have made digital asset transactions during the tax year.
A number of situations will require U.S. taxpayers to say yes to the Digital Assets question on form 1040 or 1040-SR. This includes receiving as a reward, prize or payment for goods or services or selling, exchanging, giving away or disposing of a digital asset in 2022.
This would include cases where a person received digital assets as payment for goods or services provided or as a result of a reward or prize. Receiving new digital assets through mining or staking also falls into this category, as does the transaction of digital assets in exchange for goods or services, as well as the exchange or trade of digital assets.
The holding of cryptocurrencies, stablecoins or NFTs, as well as staking tokens, is also clearly addressed in the draft tax form:
“You have a financial interest in a digital asset if you are the registered owner of a digital asset, or have an ownership interest in an account that contains one or more digital assets, including rights and obligations to acquire a financial interest, or own a wallet containing digital assets”.
The explanation about digital assets also outlined the conditions that do not require taxpayers to check Yes on their tax forms. If an individual holds a digital asset in a wallet or account, they transfer digital assets from one wallet or account to another wallet or account they own or acquire digital assets using US dollars or other fiat currencies through electronic platforms such as PayPal.
Digital asset transactions can be clearly classified under the capital gains or income sections of the 2022 tax return.
If an individual disposed of any digital assets during the year that it was held as a capital asset, they are expected to calculate their capital gain or loss and report on Schedule D of the tax return.
If individuals received digital assets as payment for services or sold digital assets to customers in a trade or business, this would have to be reported as income in their specific category.
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