Essential Guide to Reporting Cryptocurrency and Digital Asset Income on Your 2023 Tax Returns

The Internal Revenue Service (IRS) has issued a reminder that all taxpayers must diligently report digital asset-related income when filing their 2023 federal income tax returns.

What’s New This Year?
The IRS has updated the digital asset question on tax forms, including Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, and 1120S. This question now encompasses a broader range of digital asset transactions. Whether you’re an individual, a senior, a nonresident alien, or filing for estates, trusts, partnerships, or corporations, this change affects you.

Understanding Digital Assets
Digital assets are not just limited to cryptocurrencies. They include:
– Convertible virtual currencies and cryptocurrencies like Bitcoin and Ethereum.
– Stablecoins.
– Non-fungible tokens (NFTs).

The Question: At any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?

Who Should Say “Yes”?
If any of the following activities were part of your 2023 financial journey, you need to check the “Yes” box:
– Receiving digital assets as payment for goods or services.
– Acquiring digital assets through mining, staking, or as a reward.
– Selling or exchanging digital assets.
– Engaging in any transaction that involves a financial interest in a digital asset.

Reporting Income from Digital Assets
It’s not just about checking a box. You must also accurately report any income from these transactions. This could involve using:
– Form 8949 for capital gains or losses.
– Schedule D for reporting capital gains and losses.
– Form 709 for gifts involving digital assets.
– Schedule C for income received as an independent contractor or from business transactions involving digital assets.

When to Check “No”
If your interaction with digital assets in 2023 was limited to purchasing, holding, or transferring them between your own accounts or wallets, you would likely check the “No” box.

Stay Informed and Compliant
For more detailed information, please visit the Digital Assets page on IRS.gov. Reporting digital asset income can be intricate, and missing out on these details can lead to complications with your tax filings.

As your trusted tax advisors, we are here to guide you through these new requirements and ensure your tax filings are accurate and compliant. For personalized assistance or any questions regarding your specific situation, feel free to reach out to us. Questions? Make an appointment today.