Tax Tip 2023-45: Understand digital asset reporting and tax requirements

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Issue Number:  Tax Tip 2023-45

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Understand digital asset reporting and tax requirements

All taxpayers filing 2022 tax year Forms 1040 and 1040-SR must check a box indicating whether they received digital assets as a reward, award or payment for property or services or disposed of any digital asset that was held as a capital asset through a sale, exchange or transfer.

Examples of digital assets transactions include:

• A sale of digital assets.
• The receipt of digital assets as payment for goods or services provided.
• The receipt or transfer of digital assets for free, without providing any consideration, that does not qualify as a bona fide gift.
• The receipt of new digital assets as a result of mining and staking activities.
• The receipt of new digital assets as a result of a hard fork.
• An exchange of digital assets for property, goods or services.
• An exchange or trade of digital assets for another digital asset(s).
• Any other disposition of a financial interest in digital assets.

Reporting digital assets transactions

• If the “yes” box is checked, taxpayers must report all income related to their digital asset transactions.
  • Taxpayers should use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss and report it on Schedule D (Form 1040), Capital Gains and Losses.
  • If the transaction was a gift, they must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
  • If individuals received any digital assets as compensation for services or disposed of any digital assets they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type. For example, they would report W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services on Schedule C.

The Instructions for Form 1040 and 1040-SR and the IRS Digital Assets page have more information.

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