Shambhavi SoniThe Internal Revenue Service (IRS) of the United States has revised the crypto question on the main tax form. The IRS has narrowed the scope of the question by focusing on taxable bitcoin transactions.
On Form 1040, there’s a new crypto question.
On Thursday, the Internal Revenue Service (IRS) released a draft Form 1040 for the tax year 2021. The most often used tax form in the United States for submitting individual income tax returns, is form 1040. The tax office has slightly changed the crypto question in the draft form.
The crypto question now reads: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
Previously, the question read: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
The IRS has deleted the word “sent” and substituted “acquire” with “disposed of” for the year 2021.
In comparison to the significantly broader scope of the 2020 version, the revised question just inquires about your taxable transactions,” Shehan Chandrasekera, Head of Tax Strategy at tax software company Cointracker, pointed out.
“Although these modifications have no meaningful impact on your taxes, they do hint at what the IRS has learned from the 2020 version and the way it’s headed,” he stated, “they do hint at what the IRS has learned from the 2020 version and the direction it’s headed.”
How to answer IRS’s little poll?
You don’t have to tick “Yes” if you transmit cryptocurrency between wallets/exchanges or buy it, which are both non-taxable. It’s also not asking for specific figures or information, however, if you sold some, it should be reported elsewhere on your tax return. Because crypto is considered property by the IRS, each sale should result in a profit or loss. Perhaps the IRS is simply doing a poll to see who is utilising cryptocurrency. Not necessary, and a simple yes or no can be really significant. It may look familiar to those who are familiar with the foreign account inquiry on Schedule B. If you check the wrong box on the question, you could face severe penalties or even perjury charges.
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what if you say ‘no’?
If a taxpayer responds “no” and is later revealed to have made cryptocurrency transactions throughout the year, the fact that they responded “no” to this new question (under penalty of perjury) could be used against them. So you checked yes if you accomplished any of the items on the list, right? What if you simply have ‘signature authority’ over crypto held by your non-computer literate parents or other relatives? As a result, you’ll be able to assist them in managing their cryptocurrency. Should you answer “yes” or “no” to the question if you sell a parent’s crypto on their behalf, at their request, and/or for their benefit? Should you include an explanation statement with your return in either case?
These questions are unlikely to have flawless answers. What is certain, though, is that replying “no” when the fact is “yes” is a major blunder. Skipping the boxes totally isn’t as awful, but it’s also not good if the truth is “yes.” If the truth is “yes,” say so, and remember to disclose and report your income, profits, losses, and other financial transactions. Perhaps that is the goal of the question, to serve as a constant reminder. If this reminds you that you failed to declare your cryptocurrency gains in previous years, consider modifying to correct the problem. Even if you did not receive one of the 10,000 IRS crypto warning letters last year, don’t wait for the IRS to find you. Keep in mind that the IRS is quite interested in cryptocurrency and is now investigating it.
Tell us your opinion on this new crypto question on the tax form? Let us know in the comments section below.