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Reporting Cryptocurrency Transactions

If you had any involvement with cryptocurrency or other virtual currencies in 2021, you generally must disclose this activity on your tax return. Form 1040 includes the question, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

Among other situations, you must check the “YES” box for the virtual currency question if any of the following occurred in 2021:

  • You received crypto as payment for property, goods or services.
  • You used crypto to pay for property, goods or services.
  • You received crypto for mining or staking activities, or as the result of a “hard fork.”
  • You purchased crypto through a trading platform or from another individual.
  • You sold crypto for cash or exchanged it for another real or virtual currency.
  • You gave away or received crypto in a transaction that did not qualify as a bona fide gift.

Because the IRS designates crypto as property, any crypto transaction could have tax impacts.  If you received crypto as income, you should report it just like you would if you had received the payment in cash. Other crypto transactions may involve a taxable capital gain. Capital gains must be reported separately from ordinary income, and may be taxed at different rates.

The U.S. Treasury has significantly stepped up enforcement of cryptocurrency tax rules since 2020, so the IRS urges all taxpayers to fully disclose their transactions.