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Under U.S. tax law, cryptocurrencies are treated like property. As a result, each time someone buys, sells or exchanges a digital asset, it is considered a taxable event and the capital gains tax applies. The Internal Revenue Service is of the view that many reportable transactions go unreported. One method it is adopting to try capture such taxes is that, starting in 2020, the very first question on the standard 1040 Form is whether at any time during 2020 did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency.

In 2019, the cryptocurrency question was on Schedule 1, which many filers do not use. The prominent placement on the 2020 form means that the 150 million people who use the Form 1040 will have to answer the question. An inaccurate answer could be used against the filer.

The IRS recently issued draft instructions that explain who has to answer the question in the affirmative. The instructions explain that the yes box should be checked for:

It is not necessary to report on the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account to another that is owned or controlled by the same person.

Further guidance from the IRS on cryptocurrency may be found here.

Read more from the original source:
Who Needs to Tell the US Internal Revenue Service About Their Cryptocurrency Activity? - Lexology