5. How does a taxpayer report a transaction during which Bitcoin or different digital foreign money is concerned?
For the primary time ever, the IRS requested about cryptocurrency transactions on taxpayers’ 2020 Kind 1040 federal earnings tax returns. The query asks the taxpayer in the event that they acquired, offered, despatched, exchanged, or in any other case acquired any monetary curiosity in any digital foreign money at any time throughout 2020.
Nonetheless, the IRS additionally launched steerage clarifying that taxpayers who bought cryptocurrency with “actual” foreign money usually are not required to reply the query with a “sure” if they’d no different cryptocurrency transactions in the course of the tax yr as a result of a taxpayer who merely owns cryptocurrency is just not taxed on any positive factors or losses till they promote or in any other case alternate the cryptocurrency. In different phrases, there was no realization occasion that might set off tax legal responsibility.
Inclinations of Bitcoin as property should be reported to the IRS in the identical method as every other intangible property transactions, that means that the taxpayer shall be required to finish and file Schedule D and Kind 8949, or Kind 4797, to report the transaction in accordance with the directions to these varieties.