Bitcoin and other cryptocurrency have attained cult status in recent times, with most leading firms and corporations incorporating it in their business in one way or another. While it is interesting to note that Bitcoin has seen mainstream adoption, the concern regarding its volatility and regulation have always surfaced amid the hype.
One such concern is whether the Cryptocurrency purchase is taxable and reportable to tax authorities with the local governments. Though a lot of nations are still figuring out the proper regulations and tax implications of crypto payments, at least in the United States IRS has clarified the tax reporting for cryptocurrency to some extent. As per an article published in Forbes, the crypto purchases made in USD are not reportable to the IRS.
Yes, the IRS website (as of yesterday) says that purchases of cryptocurrency are not reportable to the IRS
Understand… earn rewards, gifts, income, crypto interest, staking, and mining are reportable
Use good faith… I lean more conservative to protect my clients pic.twitter.com/tHJHhBYEEb
— CJtheSmartGuy (@cjthesmartguy) March 3, 2021
As per the FAQs updated yesterday on the IRS website, the users need not report the purchases in crypto to IRS. Before the IRS guidelines were updated, the crypto users were not sure of the taxability of cryptocurrencies bought in USD. They did not know if they had to select the YES option when paying the taxes.
In the 2020 Form, 1040 for the tax reporting, the form asks the users to answer if they received, exchanged, or sent or gained any benefit from the virtual currency. Taxpayers were not aware whether they should answer Yes or No for this if they purchased any digital asset with real currency, meaning USD. IRS updated the FAQ section detailing that taxpayers need not respond “Yes” to this question if they had procured virtual currencies in USD.
One must note that only the cryptocurrency purchased in USD is not reportable to the IRS. If the users have procured cryptocurrency through any other token or coin, then they must answer Yes to the underlying question. In recent times cryptocurrencies have seen widespread acceptance due to which a higher number of users are procuring, selling, and trading in virtual assets.
This also provides more privacy to cryptocurrency traders and users who do not want to disclose their details to the IRS. The updated FAQ helps the taxpayers get better clarity of the treatment of crypto transactions and how it impacts their overall tax reporting.