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There's a lot of talk about crypto investors and tax compliance, but the “yes” or “no” questions can be surprisingly important. The IRS is asking everyone about cryptocurrency transactions. A variation of this seemingly innocuous question appears at the top of Form 1040, “Individual Income Tax Return.” 1040-SR, U.S. Tax Return for Seniors. and 1040-NR, U.S. Nonresident Alien Income Tax Return, revised to his 2023 return to update language. This question has also been added to the following forms: Form 1041, U.S. Income Tax Return for Estates and Trusts. 1065, Return of U.S. Partnership Income. 1120, U.S. Corporate Income Tax Return. and 1120S, S Corporation U.S. Income Tax Return.
The IRS asks this question with many variations for corporations, partnerships, estates, and trusts.
“At any point in 2023, you: (a) received (as compensation, prize, or payment for property or services); or (b) received digital assets (or Do you sell, exchange, or otherwise dispose of any financial interest in the assets? Yes or No?
IRS digital asset means “a digital representation of value recorded on a cryptographically secured distributed ledger or similar technology.” If a particular asset has the characteristics of a digital asset, it will be treated as subject to federal income tax. Examples of digital assets: fungible virtual currencies and cryptocurrencies, stablecoins, and non-fungible tokens (NFTs).
you do not have Must be left blank and all persons filing Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, 1120, and 1120S must check one box and select Yes or You must answer one of the following: “No.” In addition to checking the box, you must report all income related to digital asset transactions. Therefore, investors who hold digital assets as capital assets and sell, exchange, or transfer them during 2023 may use Form 8949, Sale and Other Disposal of Capital Assets, to report capital gains or losses on the transaction. must be calculated and reported. Based on Schedule D (Form 1040), Capital Gains and Capital Losses. Taxpayers who gift digital assets may be required to file Form 709, U.S. Gift (and Generation-Skip Transfer) Tax Return.
So do “yes” or “no” questions really matter? No numbers or details are required, but if you sell some, you'll need to list it elsewhere on your tax return. Since the IRS classified cryptocurrencies as property a decade ago, the sale should result in a profit or loss. Maybe he thinks the IRS is just looking into who's using cryptocurrencies? Not necessarily, but sometimes a simple “yes” or “no” can be important .
This question is similar to the foreign account question included on Schedule B of Form 1040. This question can result in hefty fines and perjury charges if you check the wrong box. If you answer “no” and then it turns out that you engaged in virtual currency trading during the year, the fact that you specifically answered “no” to this new question (punishable under penalty of perjury) It could be used against you.
We learned this with foreign bank accounts. In this context, the Department of Justice's Tax Division argued that simply not checking the box related to foreign account reporting was illegal. itself Intentionally. Deliberate failures compound penalties and increase the threat of criminal investigation. The IRS Criminal Investigation Division has met with tax authorities from other countries to share data and enforcement strategies to uncover potential tax evasion in cryptocurrencies.
This might suggest that the safe bet is to check “yes”, right? But what if you're not sure if you can fairly say it was you who made the transaction? Is that OK? What if you're acting on behalf of a company rather than an individual? Or, less formally, you can use some sort of a What if you have “signing authority” for them? Then you can help them manage their cryptocurrencies.
If I sell my parent's cryptocurrency on behalf of my parent, at my parent's request, and/or for my parent's benefit, do I have to answer “yes” or “no” to the question? Do I need to attach an explanatory text to my return explaining the relationship between the virtual currency and the return? There is probably no perfect answer to these questions. The IRS states that you have a financial interest in a digital asset if you are the owner of record of the digital asset or have ownership of an account that holds one or more digital assets. . This includes the rights and obligations to acquire digital assets. If you own a wallet that holds financial interests or digital assets.
But helpfully, the IRS also says that you generally don't need to check “yes” for the following actions or transactions in 2023:
- Keep your digital assets in your wallet or account.
- Transfer digital assets from one wallet or account owned or controlled by you to another wallet or account owned or controlled by you.
- Purchasing digital assets using U.S. or other real currency, including using electronic platforms such as PayPal or Venmo.
The IRS says not to leave any questions unanswered. Please answer “Yes” or “No”. For more information on cryptocurrency trading, please visit the IRS FAQ webpage. What is clear is that it is a big mistake to answer “no” when the truth is “yes”. Skipping the box entirely may not be such a bad thing, but it's not a good thing either. If the truth is yes, say so and don't forget to disclose and report your income, profits, losses, etc. Perhaps that's the point of the question as a salient cautionary tale.
With this, if you find yourself forgetting to report your crypto profits for the past few years, consider making amends to make amends. Don't wait for the IRS to find you, even if he didn't receive an IRS Cryptocurrency Warning Letter in 10,000. Five years ago, the IRS sent a letter to her 10,000 crypto taxpayers. do not have Once you've received your 10,000th IRS letter, it's a good idea to dust off your old tax returns and consider amending your taxes.
