A second draft of Form 1040 developed by the IRS, dedicated to the 2020 tax season reportedly revealed the agency’s initiative to make declaration a mandatory task, for any entity or individual dealing with crypto.
Specifically, the draft guideline reportedly elaborated that the definition of “transactions” will include “the receipt or transfer of virtual currency for free”, for example through airdrops and hard forks, the exchange of cryptocurrency dedicated to goods or services, buying or selling crypto, an exchange of virtual currency for other property, including for another virtual currency, as well as acquiring or getting rid of “a financial interest in virtual currency.”
“If, in 2020, you engaged in any transaction involving virtual currency, check the ‘Yes’ box next to the question on virtual currency on page 1 of Form 1040 or 1040-SR.”
The sole act of having in possession virtual currency in a wallet or account, or inter-wallet fund transferring which are supervised by the same owner, is reportedly not recognized as a transaction for the IRS.
Individuals performing disposing of activities of virtual currency, which is in possession as a capital asset via sale, exchange or transfer will be required to run calculations regarding their capital gains and losses, and report them on Schedule D of Form 1040, the IRS further clarified.
Following this update from the IRS, top-tier industry players are reportedly spending investments on tax solutions, in a bid to shine some light to the reporting burden for consumers and businesses alike.
Nominal entities have carried this out reportedly include Coinbase Ventures, PayPal Ventures and Winkelvoss Capital, who have all invested in crypto tax automation software provider TaxBit.