IRS Reminds Taxpayers to Report Digital Asset-Related Income (IR-2023-12)

The IRS has reminded taxpayers that they must report all digital asset-related income when they file their 2022 federal income tax return, as they did for fiscal year 2021. The term “digital assets” has replaced “virtual currencies,” a term used in previous years. The question, which appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, was revised this year to update terminology. All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets. A digital asset is a digital representation of value which is recorded on a cryptographically secured, distributed ledger. Common digital assets include convertible virtual currency and cryptocurrency, stablecoins and Non-fungible tokens (NFTs).

Taxpayer must check the “Yes” box if they:

• Received digital assets as payment for property or services provided;

• Transferred digital assets for free (without receiving any consideration) as a bona fide gift;

• Received digital assets resulting from a reward or award;

• Received new digital assets resulting from mining, staking and similar activities;

• Received digital assets resulting from a hard fork (a branching of a cryptocurrency’s blockchain that splits a single cryptocurrency into two);

• Disposed of digital assets in exchange for property or services;

• Disposed of a digital asset in exchange or trade for another digital asset;

• Sold a digital asset; or

• Otherwise disposed of any other financial interest in a digital asset.

For more information, taxpayers must visit the Tax Year 2022 1040 (and 1040-SR) Instructions and for frequently asked questions (FAQs) and other details, they must visit the Digital Assets page.