Cruising with Crypto: What You Need to Know for Your 2023 Tax Return

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Hey there, fellow taxpayers! Now that tax season has officially kicked off, the IRS has dropped a friendly reminder about the importance of reporting all things crypto on your 2023 federal income tax return. Yes, you heard it right – cryptocurrencies and digital assets are once again in the spotlight.

So, what’s the deal? Well, right at the top of your Forms 1040, 1040-SR, and 1040-NR, among others, there’s a new-ish question waiting for your attention. It’s all about digital assets and whether you got involved in any crypto shenanigans during the past year.

What’s a Digital Asset?

Before we dive in, let’s clarify what we mean by a “digital asset.” In simple terms, it’s a digital representation of value, securely recorded on a blockchain or similar technology. Think convertible virtual currency, cryptocurrencies like Bitcoin, stablecoins, and those trendy non-fungible tokens (NFTs).

Now, let’s get back to that question on your tax forms.

The Million-Dollar Question

The IRS wants to know: “At any time during 2023, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

Whether you’re a regular 9-to-5er or a business owner, everyone filling out Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, 1120S – you name it – needs to check a box. It’s a simple “Yes” or “No” to let the IRS know if crypto touched your financial life at all in 2023.

When to Say “Yes”

If you received digital assets as payment, got them as a reward, mined or staked them, or maybe even had a digital asset hard fork party, you’re in the “Yes” camp. Selling, exchanging, or transferring digital assets? That’s a “Yes” too.

Now, here’s the kicker – you must not only check the box but also report all the income related to your crypto escapades. Sold some Bitcoin? Transferred an NFT? You gotta spill the beans using the appropriate forms. Investors, that means diving into Form 8949 and then reporting on Schedule D.

How to Report Crypto Income

If your boss paid you in crypto, report it as wages. If you’re a freelancer who received digital assets, that goes on Schedule C. Business owners who conducted transactions with digital assets also use Schedule C. And if you gifted a digital asset, there’s a special form for that – Form 709.

When to Say “No”

Now, if you were simply HODLing your digital assets, transferring them between your wallets, or buying crypto with real money – you’re in the clear. Check the “No” box, kick back, and relax.

For those who didn’t engage in any crypto transactions during the year, or stuck to basic activities like holding, transferring, or purchasing – the “No” box is your friend.

Get the Scoop

If you want the nitty-gritty details or have burning questions about crypto and taxes, you can check out the Digital Assets page on IRS.Gov, but to really ensure that you’re keeping the maximum amount of money in your pocket even as you follow the rules and regulations, reach out to a Certified Tax Planner today. They’ll help you cruise through the wild world of crypto reporting regulations and maximize your savings!

Happy filing! 

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