While not much has technically changed for Crypto Taxes this Tax Season, the IRS is definitely making moves to clarify qualifying transactions and reporting – signaling that they’re preparing to take quick action to enforce legislation being developed by Congress.
Here’s what we’ll cover in this post.
Let’s start by going over a little history to make sure we have the context on the language changes.
Now that we have the, more recent, history out of the way. What’s new for this tax season? A slightly tweaked question.
“At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in virtual currency?”
What does this mean?
These changes hint that the IRS is taking serious measures to:
This also means that you don’t have to check “Yes” if you ‘send’ crypto between wallets/exchanges or ‘acquire’ them, as both are non-taxable transactions.
You might have also heard about the Infrastructure bill that was recently passed. But did you know that it included changes to how crypto transactions are reported?
The short version is that crypto brokers (think Coinbase and Robinhood) will be required to record transactions starting in 2023. This will be reported to their customers in a similar way as stockbrokers. If you’re wondering what else gets reported, take a look at the 1099-B currently used by stock and bond brokers.
Additionally, businesses that receive $10k or more in crypto must report receipt of this payment, as well as who sent it to them.
What does this mean?
The good news is that this doesn’t mean much for most individuals. Taxes are still only owed if crypto is sold or exchanged. And if your salary is paid in crypto, you’ll need to pay taxes on that income.
In June, the IRS clarified that an exchange between – $BTC & $ETH, $BTC & $LTC, $ETH & $LTC – don’t qualify as a like-kind exchange under Section 1031 of the Code because “while both cryptocurrencies share similar qualities and uses, they are also fundamentally different from each other because of the difference in overall design, intended use, and actual use…[and] therefore do not qualify as like-kind property under 1031.” Read more about it.
There’s no better time than now to get all of your tax documents prepared for when this happens. Because let’s be real, no one wants to spend a ton of time doing taxes. Give Beartax a try and let us know what you think!