Cryptocurrencies, stablecoins, and nonfungible tokens are all categorized under the new “Digital Asset” category on an early copy of the 2022 IRS tax form.
In their 2022 IRS tax returns, American taxpayers will discover a bigger, more precise category encompassing cryptocurrencies and nonfungible tokens (NFTs). The Internal Revenue Service’s draft legislation includes a clear Digital Assets section that specifies whether and how taxpayers must report their usage of cryptocurrencies, stablecoins, and NFTs.
Any digital representations of the value stored on a “cryptographically protected distributed ledger or any equivalent technology” are described as digital assets on page 16 of the draft.
Taxpayers had to report whether they had bought, sold, or traded in “virtual currency” on the 2021 tax form; however, this word will change in the yet-to-be-released 1040 tax form for 2022.
Whether or whether a taxpayer engaged in digital asset transactions during the tax year must be indicated in the Digital Assets section of their income tax return.
American taxpayers will have to answer yes to a number of questions on the Digital Assets section of Form 1040 or 1040-SR. This includes obtaining a digital asset in 2022 as a prize, award, payment for goods or services, sale, exchange, gift, or disposal.
This would apply to situations in which a person got digital assets as compensation for goods or services rendered, as a result of a reward, or as an award. This includes receiving new digital assets through mining or staking, exchanging or trading digital assets, and exchanging or staking digital assets in exchange for products or services.
The draft tax form explicitly addresses holding cryptocurrencies, stablecoins, or NFTs as well as staking tokens:
“You have a financial interest in a digital asset if you are the owner of record of a digital asset, or have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest, or you own a wallet that holds digital assets.”
Conditions that don’t necessitate people checking Yes on their tax forms were also described in the Digital Assets explanation. If a person has a digital asset and keeps it in a wallet or account, moves it from one wallet or account to another held by them, or buys a digital asset with US dollars or other fiat currencies via online payment services like PayPal.
Transactions involving digital assets can be categorised explicitly in the 2022 tax return’s income or capital gains sections.
If a person sold a digital asset they held as a capital asset during the year, they must determine their capital gain or loss and declare it on Schedule D of their tax return.
Digital assets must be reported as income in the appropriate category if people received them as payment for services or sold them to clients in a trade or business.
