The IRS Is Watching Digital “Assets”
Posted by Richard on March 9, 2023
The Internal Revenue Service doesn’t consider cryptocurrency to be actual money. But it does consider it to be a valuable asset and if you made dollars on bitcoins and other cryptocurrencies, that money is going to be taxed. On the other hand, following the $1.4 trillion crypto industry drop in value in 2022, if you had substantial losses, as many did, you could get some tax relief.
Expect the IRS to pay very close attention to crypto and other digital assets, such as NFTs (non-fungible tokens). The IRS now asks tax filers if: At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?
Congress also beefed up reporting requirements for exchanges and other organizations. While some reporting measures were delayed this year, expect more of a paper trail going forward.
It’s been a tough year for crypto trading, with one of the largest exchanges, FTX, imploding under the weight of alleged fraud and mismanagement. At one point, FTX CEO Sam Bankman-Fried was considered a billionaire. Now he faces complicated legal battles and potentially long jail sentences. Many crypto traders have lost money this year, but regardless, Americans will need to report crypto income and losses to the IRS.
The crypto industry’s trillion-dollar losses in 2022 are believed to be greater than the nominal GDP of Spain in 2021, which was estimated at $1.28 trillion. Exchanges, investment funds, and others have been hit hard, with some organizations and individuals now all but bankrupt.