As Bitcoin’s price surges to a new all-time high above $73,000, investors may need to prepare for IRS crypto tax reporting requirements.
With the leading cryptocurrency, Bitcoin (BTC), reaching record highs, some experts have created crypto tax regulations that they think would help investors—especially those wishing to enter the market during this bull run.
IRS Requests Crypto Tax Reports
This week, Bitcoin reached a peak of $73,000, a price increase precipitated by the tremendous demand for spot Bitcoin ETFs.
For the premier digital asset, the price represented a new All-Time High (ATH).
The price of Bitcoin has dropped to $67,947.01 in the last 24 hours, but the coin is still up over 50% year to date.
However, given the substantial increase in Bitcoin over the past three months and the increasing attention from investors towards cryptocurrencies, tax professionals caution that the Internal Revenue Service (IRS) may be preparing to conduct a scrutiny.
The pros’ speculations are not implausible in light of the IRS’s January announcement of new tax reporting regulations for the cryptocurrency industry.
However, improving the programs for digital asset service, reporting, compliance, and enforcement is likely to be a priority for the tax agency.
Therefore, investors must possess pertinent information.
Meanwhile, the IRS obtained crypto data during the 2019 tax year by distributing a form containing multiple variants of yes/no questions.
In 2023, there are some digital asset questions added on the front page of Form 1040.
According to Matt Metras, owner of MDM Financial Services, many crypto investors are unaware that the “digital assets” section, which includes cryptocurrencies, stablecoins, non-fungible tokens (NFTs), and others, pertains to them.
The digital assets inquiries exclude spot Bitcoin ETFs and Bitcoin futures ETFs to complicate the discussion.
Responses to Inquiries on the Tax Form
The entities listed in the IRS Form 1040 that are required to respond “yes” to the inquiries are as follows: those that engaged in crypto sales, exchanges, or receipts of digital currency as payment, rewards, or awards during 2023.
Individuals who obtained cryptocurrencies using U.S. dollars and continue to retain the asset can respond with “no” to the inquiries.
Meanwhile, individuals who respond “no” but have crypto profits or income are liable for demonstrating “willfulness” in which they deliberately violate the law, according to an explanation provided by Gordon Law Group president, tax counsel, and certified public accountant Andrew Gordon.
Long-term capital gains on cryptocurrencies held for more than a year are taxable at 0%, 15%, or 20%, depending on the investor’s taxable income.
However, except for assets held for one year or less, short-term capital gains apply.
In addition to Form 1099-MISC for rewards or income, crypto investors will presumably receive Form 1099-B for transactions.
Significantly, the form that investors receive may vary depending on the exchange.
