US to tax all crypto transactions including NFTs and stablecoins
The United States Internal Revenue Service (IRS) has once again updated its annual questions on cryptocurrency holdings and associated earnings.
Most notably, the authority amended the draft 2022 instructions for tax form 1040 to include non-fungible tokens (NFTs) and stablecoins, replacing the term “virtual currency” with “digital assets.”
In the recently released Draft Personal Income Tax Return, the IRS clarified that digital assets are “all digital representations of value that are recorded on a cryptographically secured distributed ledger or similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
The updated questionnaire states that taxpayers must disclose any type of cryptocurrency acquisition, including those received “as a reward, reward, or payment for goods or services” or “sold, exchanged, given away, or transferred.” otherwise of a digital asset (or any financial interest in any digital asset).
The IRS has said it plans to make criminal tax evasion cases involving cryptocurrency public, opening a new front in the agency’s scrutiny of the industry.
As described later in the petition, while taxpayers are required to report all profits and losses associated with their crypto transactions, the IRS’ experience “has demonstrated significant tax compliance shortcomings regarding cryptocurrencies. currencies and other digital assets”.
Based on its recent experiences with cryptocurrencies, the IRS believes that crypto transactions are not properly reported on tax returns. Among other reasons, the authority says there is no third-party reporting to the IRS on these transactions, and previous summonses served on other cryptocurrency dealers have revealed significant under-reporting of these transactions.
Recently, there have been many reports of the crackdown and prosecution of cryptocurrency traders by tax authorities. The IRS has also sent letters to taxpayers who may have failed to report income and pay taxes resulting from cryptocurrency transactions.
Since 2014, the so-called “Notice 2014-21” is the only guideline the tax department has issued before sending cryptocurrency holders a warning of penalties if they don’t pay the crypto transaction tax. .
The IRS has also released more than 40 questions and answers on cryptocurrency tax compliance in a further signal of increased attention after initially being slow to keep abreast of industry growth.
Basically, the IRS still considers crypto assets to be property rather than currency for income tax purposes, much like its regulatory guidance was issued seven years ago. This means that the authority will continue to tax crypto profits and losses like those of stocks, at capital gains rates.
The IRS also explained how to track fair market value, capital gains and losses in the context of virtual currencies. When a transaction is facilitated by a cryptocurrency exchange, the value of the taxed transaction is the amount that was recorded by the platform in US dollars. In addition, the taxpayer’s buy/sell price will determine whether a gain or loss has occurred as well as its duration.
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