The IRS released the Draft 2021 1040 Pages 1 and 2, with an update to the Virtual Currency Question. The ‘Yes’ or ‘No’ question now asks, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” The 2021 version is simplified and straightforward compared to the 2020 version.
If you recall, the 2020 virtual currency asked, “At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?” This lengthier question caused much confusion regarding what specifically the IRS required of the taxpayers and what would cause a tax effect on the taxpayers. The uncertainty surrounding the virtual currency question resulted in the IRS addressing specific questions in the FAQs.
For 2021 please consider the following regarding answering the new draft question. Consider yourself ‘No’ if you did not have any virtual currency transactions in 2021.
- Did you dispose of or exchange any virtual currency in 2021? If so, file Form 8949 and report on Schedule D.
- Did you receive virtual currency as compensation in 2021? Report the income as you would similar income, i.e. W-2 Wages or 1099-NEC.
- Did you dispose of virtual currency that was held for customers in a trade or business in 2021? Report the income as you would similar income, i.e Schedule C inventory.
- Did you mine virtual Currency in 2021? Report the Fair Market Value on the date of receipt and include it in your gross income.
Here Are Quick Facts Provided in the IRS FAQs:
- Virtual currency is treated as property, tax principles applicable to the property also apply to virtual currency transactions.
- A Taxpayer that receives virtual currency as payment for a good or service, must report the Fair Market Value of the virtual currency in their gross income.
- The disposition of virtual currency should be reported on Schedule D and Form 8949.
- Taxpayers may be subject to penalties for treating virtual currency transactions that are inconsistent with the Notice 2014-21.