Cryptocurrency-related issues are included for the first time in U.S. tax forms, IRS: Cryptocurrencies remain the focus of 2020

At the beginning of this year's tax season, the Internal Revenue Service (IRS) issued important tips for cryptocurrency holders to file their taxes properly. This is the first time in the United States that a cryptocurrency-related issue has been included in a tax form. The IRS expects more than 150 million people to disclose whether they bought or deployed any cryptocurrency during the tax year.

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U.S. tax season begins

Last week, the IRS launched this year's tax filing season, giving tips on how to file 2019 tax returns. The deadline for tax returns is Wednesday, April 15. The agency expects to submit more than 150 million individual tax returns.

The agency explained that the amendment to the 2019 form 1040 added a "investigation on the acquisition and processing of any virtual currency". Newly added questions about cryptocurrencies appear in Schedule 1 of Form 1040, entitled "Extra Income and Income Adjustments."

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IRS Director Charles Rettig said:

"Virtual currency is an important addition to Form 1040 this year. This emerging area is a key focus for the IRS, and we want to help taxpayers understand their obligations with respect to virtual currencies. We will also take steps to ensure that those who do not comply with the virtual currency rules People enforce tax law fairly. "

"In 2019, taxpayers involved in virtual currency transactions will need to submit Schedule 1 … The" Internal Taxation Law "and related regulations require taxpayers to keep records of tax declaration information."

The IRS says taxpayers must keep records of "receipt, sale, exchange, or other processing of virtual currencies and the fair market value of virtual currencies." The report further states that taxpayers who have not conducted any cryptocurrency transactions in 2019 are not required to submit Schedule 1.

Reporting cryptocurrency income

According to the instructions in Schedule 1, transactions involving cryptocurrencies include "receiving or transferring virtual currency for free (without providing any compensation), including airdrops or hard forks; trading goods or services with virtual currencies; selling virtual currencies; and using virtual currencies Exchange of other property, including another virtual currency. "

The agency explained that if taxpayers receive any cryptocurrency as a reward for service, or if they deal with coins sold to customers in a trade or business, they must report revenues just like other similar revenues.

IRS Notice 525, entitled "Taxable and Non-Taxable Income" states:

"If your employer gives you virtual currency (such as Bitcoin) as a reward for your services, you must include the FMV (fair market value) of that currency in your income."

The IRS emphasizes:

"FMV for virtual currency paid in the form of wages is subject to federal income tax withholding tax, Federal Insurance Contribution Act (FICA) tax, and federal unemployment tax (FUTA) and must be reported on Form W-2."

The agency provides two sets of guidelines and FAQs on the tax treatment of cryptocurrencies. The first guide was released in 2014 and the second was published in October 2019. The latter is mainly dedicated to hard forks and airdrops.

Cryptocurrency is "an important focus for 2020"

In the 2019 fiscal year progress report released in January this year, the IRS explained that cryptocurrencies are one of the emerging areas of compliance that needs attention. In addition to law enforcement activities, it also provides advocacy and education in these areas.

In 2019, this tax agency sent letters to more than 10,000 cryptocurrency owners suspected of failing to properly report their cryptographic transactions, detailing "the tax obligations associated with virtual currencies and describing how taxpayers have corrected the past The declaration was wrong. "The agency states that" taxpayers who voluntarily obey should know that taxpayers who do not obey are at risk. "The agency states:

"Virtual currencies, also known as cryptocurrencies, will remain an important focus for the IRS in 2020."