The U.S.Internal Revenue Service (IRS) is demanding that users who either bought, sold, earned, or received cryptocurrencies last year, report them in their 2019 income tax returns. Also, the way an individual files their tax returns is dependent on how the virtual asset was acquired, reports CNBC on January 24, 2020.
IRS Requires Users to File Taxes on Crypto Transactions
Per the report, the IRS has issued a tax form that requires U.S. citizens who interacted with cryptocurrencies last year, to file their 2019 income tax returns. Reportedly, users who either bought, sold, earned, or received virtual currencies have been mandated to disclose these transactions or face grave consequences.
According to the IRS in the 2019 Schedule 1 tax form of the individual income tax return:
“At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”
April Walker, CPA and lead manager for tax practice and ethics at the American Institute of CPAs who made comments said there are different ways an individual can interact with cryptocurrency. As such, the means of interaction determines how their tax return needs to be reported.
“The overarching idea is, however you transact with it, you’ll need to track your transactions,” Walker said.
How Users Can File their Taxes
On the other hand, the tax season began on January 27, 2020. Accordingly, users need to file tax returns for 2019 cryptocurrency transactions. If they had either made a loss or gain after purchasing or exchanging Bitcoin, Ethereum, etc., it has to be stated in the tax form. However, they will be responsible to pay taxes for the gain made from the transaction.
In contrast, cryptocurrencies earned from employers have the same treatment as wages. To that effect, federal income taxes are deducted from the wage that was received including FICA tax and unemployment taxes.
Reporting Taxes on Cryptocurrencies Earned from Mining
There’s also cryptocurrencies earned from mining, which have to be included as a taxable income. In this case, the fair market value of the asset as at the time received must be included in the Form W-2, that employers will issue to workers by the end of January.
While it might be challenging for individuals to determine the types of transactions to report, they have been advised to file everything including digital currencies that were received as a gift. Jackson Hewitt, a tax assistance service also recommended that users keep the records for all cryptocurrency transactions they made in 2019.