5. How does a taxpayer report a transaction during which Bitcoin or different digital forex is concerned?
For the primary time ever, the IRS requested about cryptocurrency transactions on taxpayers’ 2020 Kind 1040 federal revenue tax returns. The query asks the taxpayer in the event that they acquired, bought, despatched, exchanged, or in any other case acquired any monetary curiosity in any digital forex at any time throughout 2020.
Nonetheless, the IRS additionally launched steerage clarifying that taxpayers who bought cryptocurrency with “actual” forex aren’t required to reply the query with a “sure” if that they had no different cryptocurrency transactions throughout the tax yr as a result of a taxpayer who merely owns cryptocurrency just isn’t taxed on any beneficial properties or losses till they promote or in any other case trade the cryptocurrency. In different phrases, there was no realization occasion that may set off tax legal responsibility.
Inclinations of Bitcoin as property have to be reported to the IRS in the identical method as every other intangible property transactions, that means that the taxpayer will probably be required to finish and file Schedule D and Kind 8949, or Kind 4797, to report the transaction in accordance with the directions to these varieties.