Latest IRS draft shows how to file taxes on your cryptocurrency transactions

By: Ben Gabriel
Ben Gabriel
Ben is a cryptocurrency journalist, simple. He's also a technology and cryptocurrency geek having enjoyed immersing himself in the culture. Ben's… read more.
on Oct 31, 2020
  • The latest draft shows users how they can file tax using their digital assets, it clears all the doubts.
  • The latest draft also shows IRS doesn’t care much about the cryptocurrencies as compared to transactions.
  • The draft further suggests hard forks are taxable while transactions within personal wallets aren’t.

IRS Tax forms have a new filing method for cryptocurrency transactions, and they announced it a few days ago. The internal revenue service tax forms are used by organizations, individuals, and other taxpayers to report their financial information’s in the traditional finance systems.

It is also used by tax-exempt organizations to report all their financial transactions in the US. The report captures total income, calculates total tax, and discloses every other financial information required by the IRS. Currently, in 2020 there are more than 800 types of schedules and forms with the IRS.

Controversy with cryptocurrency

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There have been major controversies around how cryptocurrency holders are to pay tax. Although, there is a new guideline that addresses how cryptocurrency holders would carry out tax payments. This new rule does not affect cryptocurrency holders who did not actively trade in the last year.

According to the new tax forms, they are mandated to tick the “No Box” on the IRS tax forms. The “no Box” form implies that the crypto holder did not carry out any form of trading on their platform.  Here is a breakdown of what the new internal revenue form specifies

  • The new Internal revenue form cares more about transactions, whether cryptocurrency or traditional finance.
  • Airdrops are taxable, but personal transfers from wallet to a wallet do not need to be disclosed and are not taxable.
  • The new IRS form does not adopt an ambiguous process. Every transaction that passes through “pass-through entities” would have to check the yes box.

Latest IRS draft

In the latest IRS US draft for personal income tax in the USA. The IRS has clarified its stance about transactions and cryptocurrencies. The information is in form 1040, which was released by the internal revenue service on Friday. It does not mandate cryptocurrency holders to trade; rather, it requires any trader to pay tax. The IRS form contains a key question which is: Did you exchange, receive, or sell digital assets through any virtual system? You would have to Tick the No check box if you did not carry out any of the above.

This means you do not have to pay any tax if all you did was to transfer your cryptocurrency between your wallets or you carried out no action.  However, you must pay tax if you carried out a digital asset transfer from your wallet to a third parties wallet. It also states that airdrops from platforms such as Uniswap are also taxable, including stable coins and other tokens.

What about cryptocurrency frauds?

You would have to prove that your account was hack if a transfer occurred from your cryptocurrency wallet to another by a scammer. You would be liable to pay tax if you can’t prove it. Cryptocurrency holders must report their income correctly to the IRS, and you would also report to the IRS if you lost your Keys.

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