At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?
Everyone filing a Form 1040 in 2022 must answer this question. The Internal Revenue Service explains how to answer this question, including:
What is a digital asset?
A digital asset is a digital representation of value which is recorded on a cryptographically secured, distributed ledger. Common digital assets include:
- Convertible virtual currency and cryptocurrency
- Non-fungible tokens (NFTs)
When to check “Yes”
Normally, a taxpayer must check the “Yes” box if they:
- Received digital assets as payment for property or services provided;
- Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
- Received digital assets resulting from a reward or award;
- Received new digital assets resulting from mining, staking and similar activities;
- Received digital assets resulting from a hard fork (a branching of a cryptocurrency’s blockchain that splits a single cryptocurrency into two);
- Disposed of digital assets in exchange for property or services;
- Disposed of a digital asset in exchange or trade for another digital asset;
- Sold a digital asset; or
- Otherwise disposed of any other financial interest in a digital asset.
When to check “No”
Normally, a taxpayer who merely owned digital assets during 2022 can check the “No” box as long as they did not engage in any transactions involving digital assets during the year. They can also check the “No” box if their activities were limited to one or more of the following:
- Holding digital assets in a wallet or account;
- Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or
- Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.
For the complete article, IRS: Updates to question on digital assets; taxpayers should continue to report all digital asset income