Wealth

Here’s what investors need to know about the latest crypto tax reporting rules for 2022

Jose Luis Pelaez | Getty Images

The IRS is sharing more details on how to report digital assets for the 2022 tax filing year, according to draft instructions.

Since 2019, there’s been a yes or no “virtual currency” question on tax returns, requiring filers to check a box to disclose their taxable crypto activity. For 2022, the agency has changed the term “virtual currency” to “digital asset,” with more guidance on when to check “yes.”

Notably, “digital asset” now includes non-fungible tokens, or NFTs, which grant ownership to items like art, and stablecoins, which are pegged to a real-world asset.

More from Personal Finance:
How much you can earn and pay 0% capital gains taxes in 2023
IRS bumps up estate tax exclusion to $12.92 million for 2023
What 8.7% Social Security cost-of-living adjustment means for taxes on benefits

“I think that’s a good change,” said Matt Metras, an enrolled agent and cryptocurrency tax specialist at MDM Financial Services in Rochester, New York. “People who trade things like NFTs would not think of that as a virtual currency.”

The “broader language” may include new categories, such as taxpayers receiving digital assets from “play-to-earn games,” which have become popular over the past year, he said.

The IRS is always going to be behind the eight ball because they just can’t keep up with how fast the crypto space is changing.
Matt Metras
Cryptocurrency tax specialist at MDM Financial Services

“The IRS is always going to be behind the eight ball because they just can’t keep up with how fast the crypto space is changing,” Metras said.

The draft instructions say filers must check “yes” if they received digital assets as a reward, award or payment for property or services. And the agency may also require “yes” if filers sold, exchanged or gifted digital assets.

Reporting questions remain

Despite the agency’s attempts to clarify guidance on digital asset reporting, questions remain for filers and tax professionals. 

For example, filers aren’t required to submit a gift tax return for transfers under $16,000 for 2022. However, the question requires taxpayers to check “yes” for gifts that may be below that amount, said Andrew Gordon, tax attorney, CPA and president of Gordon Law Group in Skokie, Illinois.

This may cause IRS processing issues without corresponding gift activity elsewhere on the return. Overall, “there still seems to be an education gap for taxpayers,” he added.

The American Institute of CPAs has also expressed concerns over the lack of clarity for taxpayers, referencing the “cryptographically secured distributed ledger” in the instructions, which may confuse filers. 

“We suggest IRS and Treasury keep the question focused on ‘virtual currency’ until proposed and final regulations are issued defining ‘digital assets,'” said Eileen Sherr, director of tax policy and advocacy at the American Institute of CPAs. 

The organization submitted comments to the IRS about the question in late August, asking for revisions and clearer instructions with examples before finalizing the 2022 tax return.

Products You May Like

Articles You May Like

Jim Cramer urges investors to exit crypto – ‘it’s never too late to sell’
Why Amazon CEO Andy Jassy didn’t immediately say ‘yes’ when Jeff Bezos offered him the role
35% of millionaires say it’s ‘going to take a miracle’ to be ready for retirement, report finds
It’s been a volatile year for the market: These are the key things to know before rebalancing your portfolio
Tax Court Holds That 90-Day Deficiency Petition Deadline Is Jurisdictional Requirement

Leave a Reply

Your email address will not be published. Required fields are marked *