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The Virtual Currency Question Everyone Needs to Answer!

The IRS released Schedule 1 for 2019 with a new check box:

At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?

The IRS states that a virtual currency, including cryptocurrency, transaction includes:

  1. The receipt or transfer of virtual currency for free,
  2. An exchange of goods or services for virtual currency,
  3. The sale of virtual currency and
  4. Exchanging virtual currency for property or other virtual currency.
For assistance navigating relevant tax regulations, please contact a member of the Digital Currency and Blockchain Technology Services Group.

Careful attention should be paid when responding to this question:

  • If you did not have any virtual currency transactions in 2019, check “No”.
  • If you are not required to file Schedule 1 and did not have any virtual currency transactions in 2019, you do not need to answer this question.
  • You should check “Yes” if any of the following apply:
    • You disposed of or exchanged any virtual currency in 2019
      File Form 8949 and report it on Schedule D like any other capital asset.
    • You transferred virtual currency from one wallet to another wallet in 2019
      No tax effect.
    • You received virtual currency as compensation in 2019
      Report this as you would report income of the same type, i.e. W-2 wages.
    • You disposed of any virtual currency held for customers in a trade or business in 2019
      Report this as you would report income of the same type, i.e. Schedule C inventory.
    • You mined virtual currency in 2019
      The fair market value of it as of the day of receipt is included in your gross income.

If you bought or sold cryptocurrencies during the 2019 tax year and need help navigating relevant tax regulations, Withum’s team of experts are available for consultation to ensure that you stay on the forefront of what you need to know.

Authors: Daniel Krolikowski | dkrolikowski@withum.com and Nicole Angiuoli | nangiuoli@withum.com from Withum’s Technology and Emerging Growth Services Team.

Digital Currency and Blockchain Technology Services

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