New Virtual Currency Question

New Virtual Currency Question

The way we do our taxes has changed forever. For some people the change isn’t noticeable, but for others, it is drastic. With stimulus payments, a global pandemic, and the latest cryptocurrency boom, a lot is different. Even if you haven’t dabbled in the virtual currency world, your tax form has changed – but only slightly. There is a new box added that simply asks “Yes” or “No” to having any form of digital currency that every tax filer needs to check.

“Yes” or “No” to Virtual Currency?

Even if you haven’t heard of cryptocurrency, your tax preparer has. Every person who files a 1040, 1040NR, or 1040SR has a small but noticeable change to their tax return. A small check box has appeared that says “yes” or “no” to having virtual currency that every tax filer needs to check.

Of course, if you haven’t engaged in the virtual currency world, you can check no. This is pretty straight forward for anyone who has never thought of investing in cryptocurrency.

Virtual Currency

The New Virtual Currency Question

You may be able to check “no” even if you are just dabbling in the virtual realm. You can check no on this box if you have only purchased, held, or controlled cryptocurrency, or if you have only transferred currency between your own wallets.

When To Check “Yes”

Those who have started to trade digital currency for goods and services, property, or another digital currency must select “Yes”. When you receive digital currency as payment, you need to check “Yes” and use the correct form to figure out your capital gain or loss and report it on Schedule D (of Form 1040). In the same way that any asset must be reported when it is sold or disposed of, your virtual currency must be reported if you sell it.

If a taxpayer received any cryptocurrency as compensation for services or disposed of any cryptocurrency that 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, W-2 wages on Form 1040, 1040-SR, or 1040-NR, line 1, or inventory or services from Schedule C on Schedule 1).

Virtual currency won’t be going anywhere anytime soon, so we should figure out how to utilize it.