IRS Revamps Crypto Tax Reporting: Get Ready for 2022

• The Internal Revenue Service (IRS) is changing the way it classifies and reports on digital assets.
• It will now ask taxpayers to report whether they received, sold, exchanged, gifted or disposed of a digital asset in 2022 on their 1040 income tax form.
• Tax professionals have integrated new IT teams to help track activity accurately.

IRS Revamps Crypto Reporting Requirements

The Internal Revenue Service (IRS) is revamping its crypto reporting requirements due to record-high adoption of cryptocurrencies in 2022. Instead of referring to crypto as „virtual currencies,“ the IRS will now refer to them as „digital assets.“

Questions Added To 1040 Income Tax Form

Taxpayers will be asked if they received, sold, exchanged, gifted or disposed of a digital asset during 2022 on their 1040 income tax form. The agency views crypto as property rather than actual money, so the reporting protocols are different from traditional forms of income such as wages earned from a job.

Tracking Digital Assets Is Difficult

Abhinav Soomaney – a managing partner at Crypto Tax International – says he’s been helping people report their activity since 2018 and that tracking digital assets can be difficult. For example, when Non-Fungible Tokens (NFTs) are transferred from one wallet to another and sold via over the counter trading it becomes extremely difficult for accountants to track. In order to overcome this challenge, teams have been set up with codes that pull appropriate information directly from the blockchain.

Gathering Cost Basis Information

In order to ensure accurate cost basis information is gathered for tokens transferred and sold or held on another platform, manual transfer analysis is used which combines all transfers made by the client chronologically. This ensures proper cost basis and date acquired data can be tracked accurately.

Importance Of Following Rules

Soomaney emphasizes how important it is for people not to ignore these rules and take them seriously for both public and private sectors‘ benefit. He also encourages taxpayers who need help with understanding the new IRS reporting requirements to reach out for assistance from qualified professionals who understand how best to navigate these changes in an efficient manner