When you file your 2022 taxes, you’re likely to come across a new question about cryptocurrencies right on the first page of your tax return. But it might look a little different than in years past.
The IRS first added a crypto question to the top of Form 1040 — the main federal income tax document almost every taxpayer files — for the 2020 tax year. Previously, the question appeared on the Schedule 1, which is used to report additional forms of income. Now the IRS wants to change the question yet again, according to a new draft of the 2022 version of the 1040 recently published by the agency.
“At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” the IRS asks on the draft form.
The yes-or-no question previously read: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
Some tax experts expressed frustration at the wording of the question on 2021 tax forms, particularly with what “receiving” crypto meant. Simply buying and holding crypto with regular U.S. dollars is not a taxable event, but they worried the question might lead people to believe it is.
On March 18, less than a month before Tax Day, the IRS issued some guidance to help filers answer the crypto question accurately. At that time, more than 72 million Americans had already filed their taxes, IRS records show.
The new wording appears to be aimed at clarifying some of the confusion from last year's return, though the IRS did not respond to Money’s request for comment explaining the change. It’s also not clear how many filers accurately answered the question when they filed their 2021 taxes.
The push to regulate crypto
The positioning of the crypto question — at the top of the main tax form, just below basic identifying information like your name, address and Social Security number — reflects the importance the IRS is placing on taxing crypto.
"The IRS has indicated it believes there is a great deal of underreporting when it comes to cryptocurrency, and that they’re ramping up enforcement efforts to combat it," Andrew King, vice president of tax policy and research at Goldman Sachs Ayco Personal Financial Management, recently told Money.
The federal government treats crypto like property (not currency) and it’s taxable in several circumstances, including:
- Selling at a profit, like with stocks
- Earning income from crypto “mining” or “staking”
- Exchanging crypto for goods, services or another type of cryptocurrency
- Receiving crypto through an “airdrop” aka a marketing-related campaign or giveaway
As mentioned above, simply purchasing crypto with fiat money isn’t a taxable event. Neither is transferring crypto between multiple wallets that you own.
While the IRS is making moves to capture more of these taxable events, the White House has recently announced plans to regulate crypto markets. Any regulation is sure to ruffle crypto purists, who argue that regulation would go against the crypto ethos of decentralization and may curb innovation. However, some investing experts say regulation may be a good sign for crypto in the long run, ensuring better market stability, wider adoption and more protections for consumers.
Throughout the pandemic, crypto scams have run rampant. Just since 2021, the Federal Trade Commission says consumers lost more than $1 billion from scammers.