If you’re a freelancer who has been active in the virtual currency market over the past few years, there’s a new question on your 2019 personal tax return that you should pay special attention to: “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”
Specifically, you’ll find this query on Schedule 1, “Additional Income and Adjustments to Income” which accompanies the 2019 version of Form 1040. You are required to check the box to affirm if you have actively used virtual currency during the tax year.
The reason why the IRS wants to know about crypto is pretty simple: virtual currency transactions are under a higher level of scrutiny to make sure they are taxed appropriately. In addition, the IRS has released updated guidance related to hard forks and air drops of virtual currency as well as updated crypto currency FAQs.
If you are trading in virtual currency or are thinking about doing so, you need to understand these basic virtual currency tax rules:
Keep in mind that the IRS is also retroactively looking into virtual currency transactions to identify taxpayers who may have failed to report income from them in the past. If you are part of this group, you’ll need to act now, amending any outstanding tax returns and paying the tax you owe as soon as possible to avoid fines, penalties or legal action by the IRS.
If you have questions about how to report your crypto currency on your 2019 tax return or on your previous years’ returns, now is the time to contact a tax professional to help you. This is one area that the IRS is clearly focused on both this tax year and for the foreseeable future.
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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