IRS Releases Updated Cryptocurrency Reporting Guidelines By 0
The Internal Revenue Service (IRS) has released updated guidelines for cryptocurrency holders in the US.It’s the first update the IRS has published in five years after leaving investors with vague and confusing tax laws.
The IRS earlier in August sent informative letters to a pool of cryptocurrency holders that may have been delinquent on their tax reporting.Luckily, the IRS seems willing to be lenient on taxpayers since the area of cryptocurrency reporting is new and previous guidelines were confusing.
IRS Commissioner Chuck Rettig said, “The IRS is committed to helping taxpayers understand their tax obligations in this emerging area”.“The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment.We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules.”
Main takeaways in the new publication are updated hard-fork procedures, cost-basis calculations, and record keeping.Questions about what your reporting responsibilities for a Hard-Fork Protocol change were finally addressed.
A Hard Fork occurs when the cryptocurrencies protocol is updated and can lead to additional holdings with the creation of a new coin.
If a new cryptocurrency was not created and distributed as a result of a hard-fork there is no taxable income.
However, if a new cryptocurrency was airdropped as a result of a fork, you will have to report the income in the year the currency was received.
Regarding the value of the airdrop the IRS Says, “If you receive cryptocurrency from an airdrop following a hard fork, your basis in that cryptocurrency is equal to the amount you included in income on your Federal income tax return.The amount included in income is the fair market value of the cryptocurrency when you received it.You have received the cryptocurrency when you can transfer, sell, exchange, or otherwise dispose of it, which is generally the date and time the airdrop is recorded on the distributed ledger.”
Cost-Basis calculations have also been given for crypto holders to report the correct value of their holdings.Cost-Basis is determined by the fair market value of the cryptocurrency.
The IRS Says “Your basis (also known as your “cost basis”) is the amount you spent to acquire the virtual currency, including fees, commissions and other acquisition costs in U.S.dollars.
Your adjusted basis is your basis increased by certain expenditures and decreased by certain deductions or credits in U.S.dollars”.
Record-Keeping also needs to be done properly now for documentation.
Luckily, most exchanges keep all records of transactions for you.The IRS expands on this saying “The Internal Revenue Code and regulations require taxpayers to maintain records that are sufficient to establish the positions taken on tax returns.You should, therefore, maintain, for example, records documenting receipts, sales, exchanges, or other dispositions of virtual currency and the fair market value of the virtual currency”.
If you gift cryptocurrency the recipient does not need to report any income until they choose to exchange or sell the asset.“Your basis in virtual currency received as a bona fide gift differs depending on whether you will have a gain or a loss when you sell or dispose of it.
For purposes of determining whether you have a gain, your basis is equal to the donor’s basis, plus any gift tax the donor paid on the gift.For purposes of determining whether you have a loss, your basis is equal to the lesser of the donor’s basis or the fair market value of the virtual currency at the time you received the gift.If you do not have any documentation to substantiate the donor’s basis, then your basis is zero”.
The updated guidelines finally give clarification to cryptocurrency holders and their confused accountants.Hopefully, the IRS can continue its research and expand as crypto continues to expand and integrate into everyday business.
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