IRS Drafts New Guidelines On Crypto Taxation for Tax Year 2022

Taxpayers must report NFTs, cryptocurrencies and stablecoins received as payment, reward, from mining, staking or hard fork as capital gains and losses or as regular income.

The United States Internal Revenue Service (IRS) has released an updated draft of the 2022 tax form which provides instructions and guidelines on crypto taxation.

Among the most relevant updates for this year, the tax agency has replaced the term “virtual currency” with “digital assets”. Also, for the first time, IRS instructed taxpayers to report NFTs on the 1040 tax form alongside other taxable digital assets, just as crypto and stablecoins. “Digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins,” the draft read, and as such will be treated for federal income tax purposes.

This year’s document explicitly requires taxpayers to indicate whether they received digital assets as payment, as a reward, from mining or staking, or from a hard fork. Furthermore, whether they sold, disposed of, or traded digital assets and even whether they transferred digital assets for free as a gift must be reported.

In particular, IRS specified that taxpayers may owe taxes on the following transactions:

• Received digital assets as payment for property or services provided;
• Received digital assets as a result of a reward or award;
• Received new digital assets as a result of mining, staking, and similar activities;
• Received digital assets as a result of a hard fork;
• Disposed of digital assets in exchange for property or services;
• Disposed of a digital asset in exchange or trade for another digital asset;
• Sold a digital asset;
• Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
• Otherwise disposed of any other financial interest in a digital asset.

On the other hand, taxpayers doesn’t have to report their digital asset for just:

• Holding a digital asset in a wallet or account;
• Transferring a digital asset from one wallet or account you own or control to another wallet or account that you own or control;
• Purchasing digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal and Venmo.

In all other cases, taxpayers must report those assets as capital gains and losses or as regular income.