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IRS is clamping down on bitcoin — Crypto sale or exchange may be taxed as a capital gain

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CNBC’s Sharon Epperson reports on how the Internal Revenue Service is clamping down on cryptocurrencies with new tax forms for virtual currency. Subscribe to CNBC PRO for access to investor and analyst insights on bitcoin and more: https://cnb.cx/2BT2E7y

If you’re cashing in some of your Bitcoin this year, the IRS wants to know about it.

On Monday, the cryptocurrency’s value hit new heights, surging beyond $19,800 for a unit of Bitcoin. The asset’s appreciation has skyrocketed this year, rising by 160% in 2020.

Understand that if you want to take a few of those holdings off the table, you’ll need to share that information when you file your individual income tax return next spring.

In fact, the IRS gets right to the point, asking on the first page of the income tax return, or Form 1040, “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

You’ll have to check yes or no.

“The first thing with cryptocurrency is that, if you have crypto transactions, you’ll need to report them,” said Andy Phillips, director of the Tax Institute at H&R Block.

“The question is front and center — the first thing that they touch on Form 1040,” he said.

People who transacted with virtual currency aren’t the only ones who’ll be checking the yes box on their 1040 next year.

If you received any crypto for free, you’re still expected to check yes on the front of your tax return, according to newly released draft instructions from the IRS.

Exchanged some virtual currency for goods and services or for other property — including different cryptocurrency? You still need to answer yes.

You’ll also need to keep records of your transactions, which can get tricky if you’re using multiple exchanges or different types of cryptocurrency.

“People have multiple exchanges and the more spread out the cryptocurrency is, the more challenging it is to gather it together and do your calculations,” said Kirk Phillips, CPA and member of member of the American Institute of CPAs’ Virtual Currency Task Force.

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6 Comments

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