The IRS is getting serious about cryptocurrency on 2021 tax returns. And it starts at the very top of your form 1040 and forms 1040-SR asking about any virtual currency transactions you might have made.
All taxpayers filing these forms 1040 and 1040-SR must check the box indicating either “yes” or “no” on virtual currency transactions.
A virtual currency transaction includes many kinds:
The receipt of virtual currency as payment for goods or services provided;
The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;
The receipt of new virtual currency as a result of mining and staking activities;
The receipt of virtual currency as a result of a hard fork;
An exchange of virtual currency for property, goods, or services;
An exchange/trade of virtual currency for another virtual currency;
A sale of virtual currency; and
Any other disposition of financial interest in virtual currency.
If an individual disposed of any virtual currency that was held as a capital asset through a sale, exchange, or transfer, they should check “Yes” and use Form 8949 to figure their capital gain or loss and report it on Schedule D (Form 1040).
If they received any virtual currency as compensation for services or disposed of any virtual currency they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1).
More information on virtual currency can be found in the instructions for Form 1040 and on the Virtual Currencies page on IRS.gov.
Disclaimer: Alan Mendelson is a well-known TV consumer news reporter who reports on tax issues. You should seek professional advice if you have tax questions or issues.