Tax Services • Published 4/13/2022 Tax Reporting of Crypto and Virtual Currency Transactions

On March 18, 2022, the IRS issued a news release reminding taxpayers to answer the virtual currency question at the top of the relevant form where it asks: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

The IRS noted that all taxpayers filing the forms listed below must check one box answering either “yes” or “no” to the virtual currency question. This question is not limited to taxpayers who engaged in a transaction involving foreign currency in 2021.

Relevant tax forms:

Year	Form Number	Title
2021	1040	U.S. Individual Income Tax Return
2021	1040-SR	U.S. Tax Return for Seniors
2021	1040-NR	U.S. Non-Resident Alien Income Tax Return

When should you check "yes" or "no" when it comes to crypto and virtual currency? The IRS announcement highlights the Form 1040 general instructions on common situations.

Click here to view the full IRS release

Implications of checking “yes”

Did you select “yes” because you disposed of virtual currency held as a capital asset through a sale, exchange, or transfer? If so, you must use Form 8949 to figure out your capital gain or loss and report it on Schedule D (Form 1040).

Did you receive any virtual currency as compensation for services or dispose of any virtual currency that you held for sale to your customers? You must report that income as you report other income of the same type (for example, W-2 wages on the relevant form, or inventory or services from Schedule C).

Please keep the above tips in mind when conducting virtual currency transactions and contact your P&N tax advisor to learn more about how the reporting requirements may impact your tax obligations.